Self-Custody Wallets 101 & How to Secure Your Crypto [2023] | BitPay (2024)

Historically, crypto users have been divided into distinct camps: those who wish to secure their own funds by using a self-custody wallet (also known as a self-custodial wallet), and those who prefer to entrust security to a third-party wallet or exchange. If recent events have you rethinking your custody strategy, or even thinking about it for the first time, read on for a primer on how to make the move to self-custodying your funds.

In this article

• What is a self-custody wallet and why should I care?
• Benefits of self-custody wallets
• What can I do with a self-custody wallet?
• How to transfer crypto from an exchange to a self-custody wallet

What is a self-custody wallet?

Crypto wallets may share a name with the leather billfold you keep in your back pocket, but the similarities end there. Unlike analog wallets, crypto wallets don’t actually contain your crypto funds. Rather, crypto wallets secure your private keys, which are required to access your funds on the blockchain.

Crypto exchanges such as Coinbase or Kraken provide custodial wallets, meaning they’re responsible for safeguarding your keys. Anytime you initiate a crypto transaction on an exchange, they digitally “sign” it using your private key from within the wallet. It all happens seemingly automatically, with little to no user intervention required. Many users prefer custodial wallets because they would rather not bother with security themselves. However to others, trusting control of their private keys to a third-party is completely unthinkable.

For those more security-minded users, only a self-custody crypto wallet will do. When self-custodying your crypto assets, no third-party will have access to your wallet’s private keys. Not even the wallet provider. Self-custodying requires a greater degree of technical know-how than exchange-provided custodial wallets, so there may be a slight learning curve involved. Self-custody wallets allow users to serve as their own banker, but the trade-off is that wallet security also becomes their sole responsibility. A lost account password at a crypto exchange can likely be recovered. However if you’re self-custodying and misplace your recovery phrase, your funds could be lost forever. That said, there are safeguards in place to help avoid those circ*mstances.

The benefits of self-custody: total control of your crypto

When referring to the age-old debate of custodial vs. non-custodial wallets, a common refrain among crypto enthusiasts is “not your keys, not your crypto”. Whoever controls a wallet’s private keys, whether it’s an individual or a corporation, has unfettered access to its corresponding assets. Many users believe this is core benefit of self-custody wallets: this means unless you’re self-custodying your private keys, you don’t actually “own” your crypto.

The FTX collapse is a stark illustration of the potential security threat custodial crypto wallets can carry, and a reminder of the very real possibility of losing funds entrusted to a third-party. Some industry observers have even compared the FTX collapse to the bankruptcy of Lehman Brothers, which kicked off the 2008 financial crisis.

Custodial wallets have long been tempting targets for hackers and other cybercriminals. Over the years these bad actors have made off with billions of dollars worth of ill-gotten crypto funds using various exploits. FTX is far from the first custodial wallet provider to allegedly lose or misuse user funds. However, as one of the largest and most trusted exchanges, the news of its fall from grace has rattled the crypto industry, and propelled self-custody to a front-of-mind topic.

What can I do with a self-custody wallet?

BitPay offers an industry leading self-custody crypto wallet solution that gives users total control over their funds. You can buy, swap, store, send, receive and make crypto payments how you want, when you want. Your private keys will never leave your possession, so you’ll never have to question who has your keys and what they’re doing with them.

Store securely

Never trust another website to safeguard your crypto funds. Instead, secure your crypto with a self-custody wallet. The BitPay Wallet provides easy backups and industry-leading security, allowing you to easily manage multiple wallets, platforms or copayers right from the app. Plus, as a multichain wallet, you can use it as a self-custody bitcoin wallet and manage tokens across multiple blockchains all in one place.

Buy

Find competitive prices on the most popular cryptocurrencies and stablecoins, including Bitcoin, Ethereum, Litecoin, Dogecoin, Bitcoin Cash and more. BitPay lets you buy crypto with a credit card, debit card, Apple Pay or Google Pay providing near-instant delivery with no excessive markups or fees.

Swap

Want to exchange one coin for another? Easily and securely swap your crypto from within the BitPay app. Simply tap the “Swap” button from the homescreen, select the assets you wish to swap and the amounts, and receive competitive quotes in seconds. Read our full guide on swapping crypto with BitPay.

Transfer/Send/Receive

Move, send or receive secure crypto to any wallet around the world. Even seamlessly transfer your crypto across different wallets and devices by exporting/importing your wallet keys.

Pay with Crypto

Self-custody wallets make the process of paying with crypto simple and secure with multiple ways to spend your crypto. Send crypto directly to another user’s wallet. Buy gift cards with crypto. Load a crypto debit card. Or, shop with merchants that accept crypto payments. BitPay’s crypto payment stats show that self-custody wallets like the BitPay Wallet have higher payment success rates than exchange wallets like Kraken or Coinbase, resulting in a smoother experience when you transact with crypto.

Get the BitPay Self-Custody Wallet

I currently use a custodial service – how do I self-custody my crypto?

Transferring your crypto from your custodial account to a new self-custody wallet is a relatively easy process. Most self-custody wallets are free and can be set up in minutes. Here’s how to self-custody your crypto.

Step 1: Create a self-custody wallet

Download BitPay Wallet for free. It's available on mobile, tablet and desktop devices across Android, iOS, Mac, Windows and Linux operating systems. Once you have the app, create a key along with a wallet for each cryptocurrency you wish to store.

Step 2: Record your new wallet address (or addresses)

You’ll need to know your wallet’s address. In the BitPay Wallet app, you can find this by selecting “My Key” on the home screen, tapping into your wallet, tapping the three dots in the upper right corner, and finally selecting “Share Address”. From here you can write down your wallet address or copy it to your clipboard for the next steps.

Step 3: Initiate the transfer from your custodial account

In most cases, transferring assets from a custodial service like Coinbase to a self-custody wallet like BitPay is as simple as sending crypto from one address to another. With your new self-custody wallet addresses on hand, log into your custodial account. Select the Send option in your custodial account. Select the asset you’d like to transfer. Enter in your new self-custody address (the one we just created a few steps ago). Now enter the amount of cryptocurrency you’d like to transfer. Review the transaction details and confirm to send the payment.

These steps may vary depending on your custodial service. Review the steps for popular custodial services below.

• Transfer instructions for Coinbase custody wallets
• Transfer instructions for Kraken custody wallets
• Transfer instructions for Gemini custody wallets
  

Step 4: Enjoy the new control of a self-custody wallet

Once the transaction is complete, you’ll see your transferred crypto in the “My Key” section of the BitPay app. While self-custody means that there is no third party in between you and your crypto, you should still exercise extreme caution to keep your crypto safe, especially with regards to your wallet’s recovery phrase. In order to protect your funds from being accessible to hackers and thieves, store your recovery phrase in a safe and secure place.

Do I still need to buy crypto on an exchange with a self-custody wallet?

Most self-custody services facilitate crypto transactions from within the wallet. BitPay offers competitive rates on the top cryptocurrencies with flexible payment methods. All purchased crypto is delivered quickly and stored in your new self-custody wallet.