Imagine a faithful day, when you check your portfolio only to be greeted by a notification that your withdrawal from the exchange account is suspended. What happened next? Panic sets in. By leaving your crypto assets on an exchange, you have delegated the technical control of those assets to the exchange. The exchanges technically hold your coins. What is visible on your account is only a digital figure depicting that exchanges owe you those assets. When an exchange is challenged by bankruptcy, hacks, freezes, or any restrictions, the digital figure becomes worthless, and in turn, you can’t cash out your assets in such situations.
That establishes the reality behind the mantra: Not your keys, not your crypto! If you control your keys, you own your assets or money. It is challenging to be your own bank. However, thanks to the new technology around us, self-custody is easier than it was decades ago. You don’t have to run a blockchain node or become a computer scientist; you only need to deploy some strategies!
How To Be Your Own Bank?
Your Old Smartphone: Your Bank, Your Vault!
A good way to secure your digital assets is to take advantage of your old smartphone you kept at home. Turn it offline, perform a factory reset, and use it as your dedicated cold storage device. That ensures you are not carrying your entire net worth on the phone you take daily. You only have a small amount of assets on the phone you use daily. This reduces your risk in situations where you get attacked or the phone gets lost. Remember, your central crypto bank or vault is safe at your residence!
The 3-2-1 Golden Backup Rule
There is no seed phrase recovery button in DeFi. Once your seed phrase (the 12 or 20-word master key) to your wallet gets lost, your funds are gone forever. To avoid losing a fortune of assets, ensure you apply the 3-2-1 backup golden strategy:
3 Backups: Resist the urge to rely on a single copy of your seed phrase. Create three distinct copies!
2 Different Locations: Store your seed phrase in different geographical locations. For instance, if your house gets flooded or catches fire, your backup is safe in a different location.
1 Non-Digital Copy: Digital files are at risk of corruption or being hacked. Therefore, ensure you keep at least one analog copy of your seed phrase. You can achieve that by writing it on a piece of paper or, at best, engraving it into a steel plate.
The Myth of Hardware Wallets
Many crypto investors think hardware wallets are their go-to ultimate alternatives. However, they have their own risks. Firmware can contain hostile backdoors or bugs, and with a simple hammer strike, physical devices can be destroyed.
Therefore, a more robust seed phrase backup strategy is often more reliable than the hardware itself. Once your device gets destroyed, your saviour is the seed phrase.
Conclusion
Writing down your seed phrase isn’t enough; you also need to verify it. Remember, a spelling error can make you lose your fortune. Ensure you test a restore wallet option (for example, on another smartphone) before sending significant funds to such a wallet. Furthermore, restoring a wallet using a seed often shows the first account. If you have multiple accounts, you should manually use the ‘Add Account’ option in your wallet application to access other addresses.
So from today, take control! Hold your keys! Respect the 3-2-1 golden rule, and truly drive your financial future!
