Good explainer on the FTX collapse

[Horatio]

Yes, it's very much like cash. You could keep cash under the bed, house goes on fire - no more cash. Someone breaks into the house and steals cash. Flipping to digital asset self custody, if you either lose your private key or its compromised by someone - that's it - your funds are gone.

Hmm, yes & no. It is like cash but not precisely so. Before I explain why I acknowledge your reference to the Multi sig centralised model & their ability to trot off into the sun set.

With self custody there is another line of defence against loss that has not been mentioned yet at least I didn't see it mentioned.

• You could keep crypto keys under the bed, house goes on fire - no more crypto keys = no more crypto. Not exactly; when you self custody on a hardware wallet you must set up & record a recovery set of words. In the event that your keys are lost or stolen or your hardware wallet is stolen you can buy a new hardware wallet & restore all your assets onto the new hardware wallet using the recovery set of words. Of course you must manage the record of the recovery words intelligently just like you would a password. Perhaps half the words with a family member & half the words in a safe place.
• Someone breaks into the house and steals crypto keys - You're in trouble here, assuming they know what they've got their hands on & know how to extract it.
• If you die & have not made arrangements / shared details then that is also a real risk of complete loss.

 

[NoRegretsCoyote]

@Horatio makes an excellent point here. Self-custody is possible, but it is likely beyond the ability of most humans who lack the conscientiousness and wherewithal required.


The only friend of mine who does self custody with Bitcoin is an software engineer with 20 years' experience. I would trust him to do it right for himself but he is one in 5,000.

 

[time to plan]

@Horatio makes an excellent point here. Self-custody is possible, but it is likely beyond the ability of most humans who lack the conscientiousness and wherewithal required.


The only friend of mine who does self custody with Bitcoin is an software engineer with 20 years' experience. I would trust him to do it right for himself but he is one in 5,000.

There's a lot of complexity involved to ensure the asset moves to your heirs on your death or is accessible appropriately in the event of your incapacity.

 

[tecate]

The only friend of mine who does self custody with Bitcoin is an software engineer with 20 years' experience. I would trust him to do it right for himself but he is one in 5,000.

I don't think its that technical - the issue is that in no way can you misunderstand it or get it wrong. There is no 1-800 number to call in that circumstance. The best way for anyone who wants to learn is to go out and buy a hardware wallet such as a tresor or ledger - and set one up - put some play money in there - $10 worth or whatever - and go through the motions of moving cash, figuring out how to store the private key, etc.

Here's a youtube guide for example for setting up a Ledger.

There's one final risk factor with self custody ( and in fairness, it's not just a self custody risk in thinking about it) that hasn't been discussed - the $5 wrench attack. If someone knows you're into crypto and gauges that it's likely to be a significant amount that you hold, then they can hang you over the side of a balcony and motivate you to give up your private key - or make the transfer of crypto from an exchange to them.
With decentralized networks, there's scope to have these funds spirited away without any chance of recovery. It doesn't happen that much (yet) but it has happened. This is why multi-sig type solutions and/or timelock type solutions will be necessary as this progresses.