The glaring issue here is that these entities are not federally insured by the FDIC the way traditional banks are. Although these entities are far more regulated than the two horror stories I’ve mentioned, they still operate under a custodial system. On top of that, the major players that have managed to operate without having issues, such as Coinbase, Binance, and, carry similar risks. As we have seen, this has not panned out very well for many of these major centralized providers, with an estimated over $40 billion in investor money lost between just those two examples. The risks in this are pretty obvious unlike banks, crypto exchanges are often subject to far less regulation as it relates to the amount of collateral they need to keep, deposit minimums, audits, and what they do with the capital once it has been deposited.Īdditionally, many of these exchanges/entities, such as Luna or Celsius, have used the practice of offering outlandish interest rates on the deposits they receive to entice deposits out of customers. As a user, you make a deposit, and the exchange or entity keeps track of your balance(s) on an internal ledger. Essentially, these entities operate similarly to banks, where they offer to manage your private keys securely.

Instead, custodial wallets are services where a centralized entity, such as an exchange, acts as the custodian for one or more sets of private keys on your behalf. These features are not the case with custodial wallets. With non-custodial wallets like Metamask, Coinbase Wallet, and Trust Wallet, or hardware wallet providers such as Ledger, or Trezor, you are the only individual able to access your private keys upon the creation of your account. As a user, to send funds, sign messages, or recover access to your wallet, you must utilize your private key in one way or another. Your private key is essentially like your ‘seed phrase’ a random string of characters is the single point of access to your wallet. “Not your keys, not your coins,” refers to the importance of digital asset investors having control and sovereignty over the private keys to their crypto wallet(s). To understand the importance of this phrase, we first have to dissect what it means. However, in the wake of a multitude of recent high-profile centralized exchanges (CEX) and Crypto Banking collapses, insolvencies, and acquisitions, that phrase is emerging with a newfound vigor in the crypto community.

Over the years, the message of “Not your keys, not your coins” has been prevalent throughout the crypto community.

Not your keys not your coins