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When cryptocurrency users own their wallet’s private keys instead of entrusting them to an exchange, they manage their assets themselves. Security-conscious cryptocurrency users typically prefer self-custodial storage because it allows them to maintain full control of their funds without third-party involvement. Using a self-custodial wallet requires some technical know-how and trust in yourself. Because you become your own banker and security officer. The process of self-storing your cryptocurrency assets involves finding a trustworthy self-storage wallet provider and then transferring funds from a centralized exchange to this new wallet. The most important aspect of self-care is security! It is up to you to protect your recovery phrase and other sensitive cryptographic information to keep your funds safe.
Historically, cryptocurrency users have been divided into those who want to protect their funds using self-managed wallets (also known as self-managed wallets) and those who prefer to leave security to third-party wallets. or exchange. If recent events have made you rethink your storage strategy, or you’re thinking about it for the first time, read our primer on how to transition your assets into self-storage.
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What is a self-storage wallet?
Cryptocurrency wallets may share a name with the leather wallet you keep in your back pocket, but the similarities end there. Unlike analog wallets, cryptocurrency wallets do not actually contain cryptocurrency funds. Rather, a cryptocurrency wallet secures the private keys needed to access your funds on the blockchain.
Cryptocurrency exchanges like Coinbase or Kraken offer managed wallets. This means that they are responsible for protecting your keys. Every time you initiate a cryptocurrency transaction on an exchange, it is digitally “signed” using your private key within your wallet. All of this appears to happen automatically, with little or no user intervention required. Many users prefer managed wallets because they don’t care about security itself. But for others, trusting control of their private keys to a third party is completely unthinkable.
For security-conscious users, only self-custodial cryptocurrency wallets are suitable. When you self-store your cryptocurrency assets, no third party has access to your wallet private keys. It’s not even a wallet provider. Self-custodial requires a higher level of technical know-how than exchange-provided custody wallets, so there may be a bit of a learning curve involved. Self-managed wallets allow users to act as their own banker, but the downside is that the security of the wallet is also entirely the user’s responsibility. You can recover your lost account password from a cryptocurrency exchange. However, if you manage it yourself and enter your recovery phrase incorrectly, your funds could be lost forever. That said, there are safeguards in place to help prevent such situations.
Benefits of Self-Storage: Complete Control Over Your Cryptocurrency
When referring to the age-old debate about custodial and non-custodial wallets, a common refrain among cryptocurrency enthusiasts is, “It’s not the keys or the cryptocurrency.” Anyone who controls the wallet’s private keys, whether an individual or a company, has free access to those assets. Many users believe this is a key advantage of self-managed wallets. This means that you don’t actually “own” any cryptocurrency unless you manage your own private keys.
The FTX collapse is a stark illustration of the potential security threats custodial cryptocurrency wallets can pose, and a reminder of the very real possibility of losing funds entrusted to third parties. Some industry observers have likened the collapse of FTX to the collapse of Lehman Brothers, which triggered the 2008 financial crisis.
Managed wallets have long been a tempting target for hackers and other cybercriminals. Over the years, these malicious actors have stolen billions of dollars worth of ill-gotten cryptocurrency funds through a variety of exploits. FTX is not the first custodial wallet provider to lose or misuse user funds. But news of the collapse of one of the largest and most trusted exchanges has rocked the cryptocurrency industry and made its own custody a top topic.
How to self-store Bitcoin and other cryptocurrencies
To self-storage your Bitcoin, you first need to create a self-storage wallet. If you are just starting to build your cryptocurrency portfolio or are transferring balances from a managed exchange wallet, the process for creating your own managed wallet is as follows:
- Select your wallet type: Decide whether you want to use a software wallet or a hard wallet.
- Choose your wallet provider. BitPay’s self-storage wallet app is available for all operating systems and offers self-storage benefits for beginners and experts alike. Download the app to get started.
- Create a new wallet/key: Select your preferred wallet provider and generate your private keys. Depending on your existing portfolio, storage preferences, or wallet provider, you may choose to generate more than one private key.
- Back up your wallet: Unlike custody services, self-custodial wallet providers do not manage your private keys. Self-custodial wallets provide you with the tools to keep your funds safe, but it is your responsibility to back up and secure access to your wallet. The best way to do this is to have a backup of your 12-word recovery phrase.
- Send, buy or receive cryptocurrency from your new self-custodial wallet.: Now that your wallet has been created, fill it with cryptocurrency! If you plan to transfer existing funds from an exchange wallet or receive them from another self-custodial wallet, please make sure the funds are sent to the correct address. If you are transferring/receiving a large amount, please send a smaller test amount to make sure your address is correct. Cryptocurrency transactions are irreversible and cryptocurrency addresses are not interoperable. BTC can only be sent to Bitcoin wallet addresses, and ETH can only be sent to Ethereum wallet addresses. If your cryptocurrency is sent to the wrong address, you will most likely not be able to get your funds back!
If you’re starting your portfolio from scratch, take advantage of BitPay’s cryptocurrency marketplace to seamlessly purchase cryptocurrency at the best price with no hidden fees.
What can I do with a self-custodial wallet?
BitPay offers an industry-leading self-custodial cryptocurrency wallet solution that gives users complete control over their funds. You can buy, exchange, store, send, receive and pay cryptocurrency payments whenever and however you want. Your private keys never leave your possession, so you never have to question who has your keys or what they do with them.
Keep it safe
Never trust any other website to protect your cryptocurrency funds. Instead, protect your cryptocurrencies with a self-custodial wallet. BitPay Wallet offers easy backups and industry-leading security, making it easy to manage multiple wallets, platforms or co-payers right from the app. Additionally, as a multichain wallet, it can be used as a self-managed Bitcoin wallet, allowing you to manage tokens from multiple blockchains in one place.
Buy
Find competitive prices on the most popular cryptocurrencies and stablecoins, including Bitcoin, Ethereum, Litecoin, Dogecoin, Bitcoin Cash, and more. BitPay allows you to purchase cryptocurrency via credit card, debit card, Apple Pay, or Google Pay, with delivery almost instantaneous without excessive markups or fees.
exchange
Want to exchange one coin for another? Exchange cryptocurrencies easily and safely within the BitPay app. Just tap the “Swap” button on the home screen, select the asset and amount you want to swap, and receive a competitive quote in just seconds. Read our full guide on how to exchange cryptocurrency with BitPay.
Transfer/Send/Receive
You can move, send or receive secure cryptocurrencies to any wallet around the world. You can also export/import wallet keys to seamlessly transfer cryptocurrencies between different wallets and devices.
Pay with cryptocurrency
Self-managed wallets make the cryptocurrency payment process simple and secure by offering a variety of ways to use cryptocurrencies. Send cryptocurrency directly to another user’s wallet. Buy gift cards with cryptocurrency. Load your cryptocurrency debit card. Alternatively, shop with merchants that accept cryptocurrency payments. According to BitPay’s cryptocurrency payment statistics, self-custodial wallets like BitPay Wallet have a higher payment success rate than exchange wallets like Kraken or Coinbase, providing a smoother experience when trading cryptocurrency.
Take control of your cryptocurrency
Get BitPay self-managed wallet
You are currently using a managed service. How do I self-store my cryptocurrency?
Transferring cryptocurrency from your custodial account to a new self-custodial wallet is a relatively easy process. Most self-custodial wallets are free and can be set up in minutes. Here’s how to self-store your cryptocurrency:
Step 1: Create a self-custodial wallet
Download BitPay Wallet for free. It is available for mobile, tablet and desktop devices on Android, iOS, Mac, Windows and Linux operating systems. Once you have the app, create a key along with your wallet for each cryptocurrency you want to store.
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Step 2: Write down your new wallet address (or addresses).
You need to know your wallet address. You can find this by selecting “My Key” from the home screen of the BitPay Wallet app, tapping your wallet, then tapping the three dots in the upper right corner and finally selecting “Share Address”. Here you can write down your wallet address or copy it to your clipboard for the next steps.
Step 3: Start a transfer from your managed account
In most cases, transferring assets from a custodial service like Coinbase to a self-custodial wallet like BitPay is as simple as sending cryptocurrency from one address to another. Log in to your admin account with your new self-storage wallet address. Select the Send to option from your managed account. Select the asset you want to transfer. Enter your new self-managed address (the one you created a few steps ago). Now enter the cryptocurrency amount you want to transfer. Review transaction details and confirm payment.
These steps may vary depending on your managed service. Review the steps for popular managed services below.
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Self Custody Tips: It’s always a good idea to send a small amount of cryptocurrency before transferring a large amount to a new wallet to make sure the address is correct. Remember: once a transaction is made, it cannot be reversed.
Step 4: Enjoy the new controls of your self-custodial wallet.
Once the transaction is complete, you can view the transferred cryptocurrency in the “My Keys” section of the BitPay app. Self-storage means there are no third parties between you and your cryptocurrencies, but you must exercise extreme caution to keep your cryptocurrencies safe, especially when it comes to your wallet’s recovery phrase. To protect your funds from being accessed by hackers or thieves, keep your recovery phrase in a safe place.
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Should I continue to buy cryptocurrencies on exchanges that have self-custodial wallets?
Most self-custodial services facilitate cryptocurrency transactions within their wallets. BitPay offers competitive rates on top cryptocurrencies with flexible payment methods. All purchased cryptocurrencies will be delivered quickly and stored in your new self-custodial wallet.