Taking self-custody of your bitcoin is a process involving setting up a self-custodial wallet then sending your bitcoin to one of your addresses.

Private keys are central to bitcoin ownership.

Every bitcoin transaction must be authorized using the correct private key, meaning if you exclusively hold the private key, then you alone can spend the bitcoin associated with that key. The control of private keys– their creation, security, and management – is how you own bitcoin without relying on any 3rd party.

Custodial wallets, like Strike, handle private keys on behalf of their users. The process of taking self-custody of your bitcoin involves setting up a new self-custodial wallet, then sending your bitcoin to an address created from that wallet.

There are two basic types of self-custodial wallets:

• Hardware wallet: A physical device, usually with a screen, that runs its own wallet app to generate a seed phrase and manage private keys directly on the device.
• Software wallet: A mobile or desktop app that you download, which generates a seed phrase and manages private keys within the app.

One of the major threats to your private keys is malicious or faulty software. If bad software infiltrates your wallet app, it could compromise your bitcoin. For this reason, it’s crucial to be cautious about your wallet’s connection to the Internet.

Wallets can be further categorized based on their Internet connection:

• Hot wallet: A wallet that’s connected to the Internet
• Cold wallet: A wallet that’s disconnected from the Internet
• Air-gapped wallet: A wallet that is never connected to the Internet, and which passes transaction information via physical SD card or some other means.

When should I take self-custody

Many people start their Bitcoin journey using a custodial app, like Strike, since it offers convenience, simplicity, and security. However, as you gain a deeper understanding of Bitcoin or allocate an increasingly significant portion of your wealth into it, self-custody should become an essential part of your financial plan.

Before proceeding with self-custody of your bitcoin, it’s best to understand key concepts:

• Private and public keys: Learn how bitcoin transactions are created and authorized via private and public keys.
• Seed phrases: Understand how your private keys are generated from a seed phrase and how to recover them in case your wallet is lost, damaged, or destroyed.
• Private key security best practices: Know the best practices to properly safeguard your private keys and seed phrase to prevent loss or theft.
• Mult-signature setups: Especially for large amounts of bitcoin, consider multi-signature (multi-sig) wallets that require multiple, geographically distributed private keys to authorize transactions.
• Cold vs. hot vs. air gapped wallets: Understand the differences between cold wallets (offline storage), hot wallets (online storage) and air-gapped wallets (never-connected storage), and how to use each safely.
• The UTXO system: Learn how UTXOs (Unspent Transaction Outputs) work to avoid issues that could make your bitcoin uneconomical or unspendable and protect your privacy.

Once you have a strong grasp of these concepts, research and choose the right self-custodial wallet that suits your needs. Many people opt for a hardware wallet, which can cost around $100 or more. Whether you choose a hardware or software wallet, be prepared to stay updated on the latest software or firmware to protect against security vulnerabilities.

Online tutorials, videos, and step-by-step walkthroughs are great resources for researching wallets and how to use them.

How to take self custody

Here’s how to take self-custody of your bitcoin using a hardware wallet:

1. Buy a hardware wallet: Research and choose a reputable hardware wallet and follow the setup instructions provided in the package. For security reasons, it’s best to purchase the wallet from the manufacturer, rather than from a reseller.
2. Set up your wallet: Turn on the device, follow the on-screen instructions to begin creating your new wallet.
3. Record your seed phrase: As part of the setup process you’ll be prompted to write down a 12, 18, or 24-word seed phrase, which can be used to recover your wallet if it’s lost or damaged. It’s vital to record the words accurately and in the correct order, and to follow best practices when storing them for safekeeping.
4. Generate a Bitcoin address: Initiate a “receive” transaction in your wallet to generate a new Bitcoin address.
5. Copy and paste the address: Copy the address and paste it into the service you’re using to send bitcoin (like Strike). This can be done either by having your wallet generate a QR-code, or by sharing the address to yourself, preferably using a secure and encrypted message app. Double check that the address’s characters are correct.
6. Set your fee and amount: Choose a transaction fee and enter the amount of bitcoin you want to send, making sure it aligns with UTXO best practices.
7. Send a test transaction: As an optional step, you can send a small “test” transaction to your Bitcoin address to be absolutely sure that the address is correct.
8. Initiate the transaction: After reviewing all details, initiate the transaction to your address.
9. View the transaction on the blockchain: Once your transaction has been initiated, it will typically appear as a pending transaction. As a final step, you can monitor your transaction’s progress on a blockchain explorer by searching for your Bitcoin address.

Once your transaction has six confirmations (~60 minutes), it is generally considered complete.

At this point, you exclusively own the bitcoin because you control the wallet with your private keys, and you have securely stored your seed phrase.