Why the pushback against managing your own keys? [72]

Recent pushback against self-custody has been reaching a fever pitch since FTX collapse

Good afternoon, friends!

Happy New Year everyone, it’s just in time to talk about the fact that there’s been ever-increasing talk from people around the crypto community about the “risks” of self-custody. This has especially increased since the beginning of the bear market and in the wake of the collapse of SBF’s FTX empire.

Managing your own keys can be completely safe for ordinary users with sane key management and there are lots of wallets out there that provide strong encryption and key control.

Simply spending the time to learn how to set up and use a hardware wallet such as Trezor or Ledger can provide a great deal of security.

It has long been said in the crypto community “not your keys, not your crypto,” and this has never been more true than with the bankruptcy of FTX. More than one million people lost money when FTX burned to the ground, having their crypto locked up because they didn’t own the keys.

Even before that incident, people were already giving central exchanges the side-eye and withdrawing their crypto – such that by Nov. 13, the analytics provider Glassnode reported that exchanges had seen an outflow of Bitcoin reach almost historic levels of 106,000 BTC per month.

We should keep this in mind when we look at who is talking about the risks behind managing your own keys.

That’s not to say that there are no risks when mistakes are made because recently Bitcoin core developer Luke Dashjr went on Twitter to claim that his PGP keys were compromised, which he said led to the loss of more than 216 BTC, totaling almost $3.6 million.

This incident caught the attention of Binance CEO Changpeng “CZ” Zhao, who is himself a supporter of self-custody, but tends to caution people that they must “do it right.” Often warning that 99% of people aren’t capable of holding their own crypto correctly and may end up losing it.

Of course, he is the CEO of a centralized exchange, where people could be holding their assets and using them for trades. People have to trust his exchange, rather than themselves to get it right.

Self-custody does come with its own risks and it doesn’t involve dealing with slow, or inattentive customer service, which may not help people when the exchange or their account is hacked, and it certainly doesn’t help when an exchange goes bankrupt.

Learning how to properly manage your own keys using a wallet, using a hardware wallet or other cold storage, and other measures to protect them is essential. Just because other people, even a core developer, have fallen prey to a hack, doesn’t mean that it cannot be safe or that it’s not viable.

As usual, the past weeks’ news continues below in a bulleted list and the longer discussion of what’s happened is available for paid readers. Farewell to 2022 and hello to 2023 everyone. I hope the New Year has treated everyone well and I will see you in the next newsletter!

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Blockchain Bulletin

• Winter storms drop Bitcoin hash rate nearly 40% as miners unplug. Brutal winter storms scourge the US causing electrical grids to stretch to their limits and bitcoin miners have suspended operations causing the bitcoin hash rate to dip 38%, reported Decrypt.

• Kraken withdraws from Japan citing weak crypto market. Crypto exchange Kraken announced that it is withdrawing its services from Japan due to weak crypto markets and low volumes with a closure date Jan. 31, reported Bitcoin.com.

Blockchain Behind the Scenes

• Bitcoin miner Argo avoids bankruptcy with $100M from Galaxy Digital through sale of its Helios facility. Argo Blockchain has agreed to sell its Helios mining facility to Galaxy Digital for $65 million and will receive an additional $35 million loan to avoid bankruptcy as part of a restructuring plan.

• DeGods and Y00ts bridge off Solana onto other chains. The popular Solana NFTs DeGods and Y00ts have announced plans to migrate off the chain to Ethereum and Polygon respectively using a bridge to be announced soon.