The self-preservation of Bitcoin, Ethereumand other cryptocurrency assets grab a lot more attention since Sam Bankman-Fried’s FTX exchange unexpectedly blown up a few weeks ago in a whirlwind of drama.
Users of the former third largest exchange have no idea if they will ever get their money back. With this in mind, many users decide not to use more centralized exchanges like FTX or Coin base with their funds.
“If you leave your funds on an exchange, you open yourself up to the risk of hacks, frozen withdrawals due to business failure and insider fraud,” said self-custody platform Casa CEO and co-founder Nick Neuman Decryptciting FTX as a “strong example” of this.
With self-custody, users move their funds into their own wallets which only they control.
“There are similarities between private keys and car keys. When you give the only key to someone else, they can gain access to your car and drive away. If you keep your key, you are free to do what you want,” said Ledger CEO Pascal Gauthier.
If having full control over your crypto sounds appealing to you, then follow these steps to move your funds from an exchange to a wallet you own.
Create a wallet on a self storage platform
An important caveat before we begin is that while self-preservation helps users protect themselves from third parties stealing their money, it requires much stricter personal responsibility.
Users must write down a seed phrase, more or less equivalent to a password that can be used to back up all the addresses connected to the wallet. If the seed phrase is lost, the Bitcoin or crypto attached to it is lost forever.
If you are willing to accept that responsibility, there are tons of options of wallets to use to store your funds.
We will look at the popular desktop wallet Electrum.
Once you download the Electrum wallet softwareafter some initial setup you will be prompted for a new “seed phrase.” This is the important “password” we mentioned. Write down the 12 words. This is the most important step because if you lose these words, there is no help desk to turn to to get your money back. It is important to keep these words safe and offline. (In other words, don’t save these words to a file on your computer or your phone.)
There are many other wallets to choose from, but whichever wallet you choose, the flow is more or less the same: Download the wallet (on PC or mobile), then write down the important words that are never lost or shared may not become (Important: If you do (ever share this seed phrase, the recipient of the phrase will have total access to the contents of the associated wallet.)
Other cryptocurrencies require different wallets. Metamaskfor example, is a popular browser and mobile wallet used for self-storage of Ethereum and other compatible signs. Phantom is the most used wallet for Solana and Solana-based assets. And there are many more examples.
Another option with extra security is to have a hardware walletsuch as Ledger or ColdCard, which store the keys in an offline environment, protecting them from potential hacks.
Move funds from the exchange
After choosing your wallet provider, it’s now time to move your funds from the exchange to your new wallet—a wallet that you (and only you) control.
First, you need to create a new address in your wallet where you can send your Bitcoin (or other crypto). In Electrum, you click the “receive” button to generate a Bitcoin “address,” a chaotic string of numbers and letters, roughly similar to an email address. In MetaMask, Phantom, and other similar browser-based wallets, the address is already created, and you’ll need to click either “Account” or “Deposit” or a similar button to copy that address to your computer’s clipboard.
At your chosen exchange, say Coinbase for example, there will be some sort of “Withdraw” button on your account page for each of your assets. To send the funds to your wallet, you need to click the “Withdraw” button for the corresponding assets (“Bitcoin” for a Bitcoin wallet, “Ethereum” for an Ethereum wallet, etc.), paste in the address from the self-storage wallet you created, and click “Send.”
Often you will be asked by the exchange to make sure you copy the correct wallet address, or to confirm that you really want to withdraw your funds, but the mechanics will be slightly different depending on the exchange you use.
Self-care rabbit hole
You’ve now sent your crypto from an exchange to your own escrow wallet—so what’s next? “Do your own research” (DYOR) is a motto in the Bitcoin sphere because there is a lot of information to wade through to become as informed as possible about cryptocurrency. Self-preservation can be considered its own rabbit hole worth exploring.
There are more complex options for self-preservation than we have described above.
For example, “multi-sig” wallet options, such as Casa, offer more flexibility. Instead of just one private key, the wallet is secured by a pair simultaneously. That way, if the user loses one key, his or her funds are still safe. (Though if two keys go missing, congratulations.)
Some users carve theirs seed phrase in metal plates for added peace of mind. If the place where they seed phrase is saved burns off, for example, the seed phrase must still be legible.
And as Neuman points out, the user experience of self-monitoring is constantly improving. Casa’s user experience, for example, does not require writing down or remembering seed phrase. “Anyone can do it. We believe we can continue to improve it in a way that makes it possible for anyone in the world to keep their own keys safe,” Neuman said.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.
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