Ethereum, the succeeding cryptocurrency to Bitcoin, went through many controversies and media headlines, especially since the FTX collapse or the Merge update. Although not many consider digital assets to be better than Bitcoin, Ethereum achieved much more quickly, from price increases and constant updates to blockchain solutions. Given its improvements, the& best way to buy Ethereum& is not singular ―you can choose from debit card, credit card, bank transfer and third-party payment.&
Besides these advantages, Ethereum still struggles with scalability and security. Users who don’t store their ETH properly could lose all their assets. The problem might include the lack of software solutions but also the little to no support for decentralized exchanges and digital wallets.&
Therefore, the demand for self-custody wallets increases, and users want control over their digital coins. But what does this imply?
Image source: https://pixabay.com/ro/vectors/ethereum-criptomoned%c4%83-moned%c4%83-6870435/&
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What is crypto self-custody?
Most of the time, crypto users prefer to hold their cryptocurrencies in a wallet provided by a third-party organization, like an exchange. Although these services are highly appreciated and easy to use, they sometimes pose security risks. During the FTX, for example, many people lost their funds due to inefficient secure programs and practices, which increased users’ awareness of security.
Self-custody means that you don’t rely on any type of storage system and choose to store your coins in a wallet where you watch over the private keys and seed phrases. This practice is a great approach as you minimize the chances of the third party you use affecting your funds in case it gets hacked, goes bankrupt or is caught with illicit activities.
One popular way of owning your crypto is to use DeFi applications that allow developers to create decentralized financial instruments to maintain the privacy of their portfolios. Loans and insurance can be transformed to benefit only the recipient.
How does a self-custody wallet work?
Self-custody wallets come into two categories. Hot wallets are connected to the internet and designed for people to access them fast and easily ― mobile and desktop are commonly used. Cold wallets don’t need an internet connection to operate and are used for long-term storage ― hardware wallets are popular options that don’t sign transactions online.
The differences between these wallet options are in regard to security measures. While hot wallets are more accessible, they pose safety risks as hacking and other threats are more likely to happen than in the case of using hardware wallets. Cold wallets come in physical or paper devices that can store private keys more efficiently. However, cold wallets might be more complex because you need to transfer your coins from a cold wallet to a hot storage to utilize your funds.
How to use a self-custody wallet
Using a self-custody wallet means you must be more wary of security implications. So, you’re responsible for the following:
- Choosing a reliable wallet provider that has good reviews and feedback from the community;
- Using a hardware wallet from official sources and inspecting the package for tampering;
- Securing your seed phrase by keeping it in a safety deposit box;
- Enabling two-factor authentication to prevent unauthorized access;
- Being wary of scams, unsolicited messages and avoid sharing your private keys and seed phrases;
- Considering multiple privacy measures, such as smart contract protection;
& The benefits of self-custody
Moving to self-custody instead of relying on decentralized exchanges has the following benefits:
- It’s censorship-resistant, meaning that your assets can’t be confiscated by an application, which is especially great in areas where capital controls are frequent;
- It’s safer since private keys are not stored on a central server and are instead properly secured somewhere not connected to the internet;
- It expands access to financial services for people living in areas where banking services are scarce;
- It’s easier to manage your funds however you like for the benefit of the crypto portfolio;
- Its decentralized features allow you to use a more transparent financial system;
The disadvantages of self-custody
Self-custody also has some drawbacks you need to consider:
- It pushes you to be the only one responsible for your cryptocurrencies;
- It’s more complex than using a crypto exchange, requiring specific technical knowledge;
- It has limited functions, so you may only buy and sell crypto and access limited trading services;
Why should you be prepared with more secure storage measures?
The cryptocurrency market is a volatile ecosystem that can yield high returns, similar to losses. Investing in crypto for the long term is the best way of making the most out of your funds, but it’s not always the case. During the FTX collapse, many people lost considerable coins despite their security measures and portfolio diversifying. That’s because when the market collapses, sometimes the best way to do it is to withdraw your funds and stay safe.
But how can you expect such a period if the market is volatile? Experts identified two market moods: bearish and bullish trends. The bearish market consists of a decline in the value of cryptocurrencies, while the bullish trend shows a price increase.
The crypto bear market is usually caused by slow economies, political crises, and social overturns. Still, it’s challenging to know when the bearish trend will start after the occurrence of such events. The bear market is characterized by greater supply than demand, a lack of investor confidence and negative media coverage. Key indicators of this happening include lower trading volumes, changes in federal funds rate and the intervention of regulatory institutions.
On the other hand, the bull market is identified by increased investor optimism, and some of its characteristics are strong demand, but low supply, overpricing, increased prices and interest in cryptocurrencies among famous people. You can recognize a bullish market trend from the growing optimism from traditional finance and the introduction of institutional capital. Still, the overall pop culture support is the most obvious sign.
Bottom line
As the crypto market constantly changes and markets collapse, crypto users, especially Ethereum enthusiasts, demand more self-custody for their assets so as to have better control of their funds. Self-custody wallets are a great choice since they provide total control but might be more complicated to maintain and set up.
The post More Ethereum users are interested in self-custody storage appeared first on CoinJournal.
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