What Does “Not Your Keys, Not Your Coins” Mean?
“Not your keys, not your coins” is a phrase often used in the crypto community to emphasize the importance of self-custody when it comes to holding cryptocurrencies. It suggests that unless you personally control the private keys to your crypto holdings, you cannot be certain of your ownership. This means storing your assets in a wallet for which you have exclusive access to the keys.
FTX, for example, held onto users’ wallets and keys, and users’ access to funds depended on the exchange’s ability to send them. This centralized custody model goes against the principle of self-custody.
The Importance of Self-Custody
Self-custody refers to the practice of using a web or mobile wallet or a physical hardware wallet to store your cryptocurrency. The “key” in question is your private key, which acts as a password to access your funds. While custodial solutions exist for those who prefer not to handle the technical aspects of managing their own wallets, relying on third parties such as exchanges or investment firms means relinquishing control over the keys to your holdings.
According to proponents of the “not your keys” philosophy, a wallet on a centralized exchange does not truly belong to the account holder. In case of withdrawals or incidents like the FTX collapse, users can lose access to their crypto holdings entirely.
The Potential Risks
In 2020, a California court case called Racher v. Coinbase highlighted the risks associated with not having control over your private keys. The verdict stated that the exchange had no obligation to pay out Bitcoin held in user accounts during the 2017 Bitcoin fork.
However, some argue that “not your keys, not your coins” can be counterproductive and hinder crypto adoption. They believe that custodial solutions provide convenience and accessibility to a wider range of users who may not want to manage their own wallets.
Hot Take: The Balance Between Self-Custody and Convenience
The phrase “not your keys, not your coins” serves as a reminder of the importance of self-custody in the crypto world. It underscores the risks associated with relinquishing control over your private keys and relying on third parties for custody. While self-custody provides the highest level of security and ownership, it may not be suitable for everyone. Custodial solutions offer convenience and accessibility, but they come with the trade-off of reduced control. Striking a balance between self-custody and convenience is essential for individuals to safeguard their crypto holdings effectively.
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