Now, when we start our journey into cryptocurrency. We often sign up for an exchange account to buy the cryptocurrency we want. It is a perfectly normal step.
To start the process, we, as the customer, will need to provide our personal information & bank details in exchange for access to acquire tokens in the cryptocurrency market. The benefit of having an exchange account is the ability to house and trade your tokens all within the same place.
Although you do not have total ownership, let me repeat that, you do not have complete cryptographic ownership.
Items within your exchange account are subject to risks of the exchange. If an exchange fundamentally is a lousy business, they close its doors. You, as the customer, will not have the ability to withdraw your assets at all. From there, you would have to follow the protracted legal proceedings for the chance to get a fraction of your investments back. Plenty of exchanges have gone through this: Celsius, Voyager, and others around the globe.
How does having a self-custody wallet help me? What is the differentiator between an exchange account to self custody?
You will see the most significant difference when you begin searching for a wallet provider like MetaMask, MyEtherWallet, Trust Wallet, and others. When setting up your wallet, you will receive a seed phrase.
A seed phrase is a group of random words generated by the wallet that allows users to access the crypto stored within. The seed phrase is your digital fingerprint for the assets in your wallet. It is unique for that one wallet, just like your fingerprint in the real world.
Having this phrase is a powerful piece of ownership. Therefore, you will store this phrase safely as a part of the process.
Now, this set of words is a momentous responsibility. When you have ownership of this seed phrase, you will be able to handle and move your assets regardless of what happens to the physical device you use to access them. For example, let's say the device you access your wallet suddenly dies. There is no warning, the screen turns black, and you cannot turn it on.
As soon as you get your next device, you download the same wallet provider and input the seed phrase. You will be within the same account. This seed phrase is your digital fingerprint to your vault. Now we must be upfront with you. This type of ability comes with great responsibility.
Two people knowing a seed phrase is a compromised seed phrase.
If someone else knows your seed phrase, they will have every cryptographic right to open your wallet and drain cryptocurrency from your account. So make sure you understand the trust of the people around you when handling this powerful phrase. Maybe this is something that you are not ready or organized to deal with, be aware of the risks of having your money on your exchange. They did not give you a seed phrase; therefore, the assets in your account are not solely yours.
If there is something in this article that you think we have missed, don't hesitate to get in touch with support, and we will be able to help provide more clarity!