Self-custody means sending your bitcoin to an address where you directly control the private keys needed to spend that bitcoin.

The term “Bitcoin wallet” can be a bit misleading.

Bitcoin wallets don’t actually hold bitcoin in the same way that cash wallets hold paper cash. This is because bitcoin is digital money that exists as records of transactions on a distributed financial ledger, called a blockchain. Owning bitcoin simply means there’s a transaction on the blockchain to an address in which you control the ability to spend – something that can only be done using private keys.

Private keys are like the master keys that unlock your bitcoin whenever you need to authorize a transaction. If you control the private keys, you own the bitcoin – hence the saying “Not your keys, not your coins.”

A Bitcoin “wallet” might be better understood as a “key chain,” since it’s how you manage your keys to spend your bitcoin. There are two basic setups for managing private keys:

• Custodial wallet: A custodial wallet is a wallet where a trusted 3rd party manages the private keys on your behalf (like Strike).
• Self-custodial wallet: A self-custodial wallet is a wallet where you have full control over your private keys.

When using a self-custodial wallet, you rarely if ever view or interact with your private keys directly. The way you control your private keys is by controlling access to your wallet app that holds the keys and through backing-up your wallet using a seed phrase. A seed phrase is a sequence of 12 to 24 random words generated by your self-custodial wallet app, and is used to create your private keys and to recover them in case your wallet’s lost or destroyed.

If you control your private keys, either by exclusively holding your seed phrase or the wallet app that has your private keys, then you have the sole ability to spend your bitcoin. Self-custody is about exclusively controlling the ability to spend your bitcoin.

Why should you take self custody?

When people first get into bitcoin, they often start with a custodial wallet, like Strike. Custodial wallets offer convenience, simplicity, and security, often with the added perk of letting you buy bitcoin in-app. With a custodial wallet, you don’t need to worry about seed phrases, private keys, or UTXO management – you simply set up your wallet, then buy, hold, and transact bitcoin as you wish.

Taking self-custody of your bitcoin is an important step in your Bitcoin journey, providing unique benefits while letting you eliminate reliance on 3rd parties:

• Elimination of custodian risk: When holding your bitcoin in a custodial wallet, you must trust that the custodian won’t fail due to bankruptcy, hacking, or legal issues, or obstruct your access to your bitcoin in any way.
• Full control over your bitcoin: Self-custody ensures that you alone decide when and how to send or receive your bitcoin, without any external interference.
• Verifiability: Self-custody allows you to verify your own bitcoin holdings on the blockchain itself, ensuring that your funds are held in their entirety and securely under your control.
• Enhanced privacy: By eliminating 3rd party-involvement from your transactions, you can maintain greater financial privacy.

Self-custody is ultimately about financial self-sovereignty–taking full control of your money without relying on others. It provides financial freedom and a level of control that’s unmatched in the legacy financial world. However, this freedom comes with added responsibilities. When you have exclusive control of your money, you are solely responsible for its protection against loss and theft, as well as managing the complexities of UTXOs, fees, and privacy.

Self-custody offers you financial independence, while calling you to take full responsibility for your money.

Why is self-custody important?

Self-custody goes beyond your personal risk mitigations and financial self-sovereignty. It’s about a new approach to money itself.

Bitcoin is peer-to-peer electronic cash, allowing you to hold and transact digital money without needing a bank or any 3rd party. All other forms of legacy digital money–dollars, euros, yen, pesos–require that you trust a bank to hold and manage your funds. It’s mandatory 3rd party involvement.

Banks take in deposits and then lend them out to earn revenue. Your cash balance isn’t an asset held in full by your bank, it’s being lent-out and is better understood as a bank liability – an amount of money the bank owes you. This is called fractional reserve banking, and it means when you deposit cash, you must trust the bank not to lose your funds through risky lending, while also trusting that your fellow depositors won’t all withdraw at the same time, causing a bank run and collapse.

On top of such bank risks is central bank risk. Central banks, like the Federal Reserve (aka “the Fed”) in the U.S., control the money supply and can print money, which leads to inflation. If commercial banks go bust, the central bank may step in and print money to solve the crisis. This means all cash, whether digital or physical, has the ongoing risk of being devalued by the central bank for their desired purposes.

Bitcoin self-custody offers a new approach to money:

• No bank lending risk: No bank can lend out, invest, or otherwise put your self-custodied bitcoin at risk for their own gain, or restrict the movement of your bitcoin in any way.
• No arbitrary inflation risk: Nobody can print more bitcoin, since Bitcoin’s monetary policy is set in code, which is run by countless self-interested node operators who are financially incentivized to never change the supply limit of 21 million bitcoin.
• Holding funds outside legacy systems: Self-custodied bitcoin is immune from bank runs, bank failures, and mandatory participation in taxpayer-funded bail-outs. It provides a way to hold money that is independent from the fragility of legacy financial systems.

Self-custodied bitcoin is a monetary shift that moves the power of money from banks to people. If you hold your private keys, you have sovereignty over your money.

Taking self-custody is asserting your financial sovereignty.

If you’re ready to take self-custody, you can read more about how to take self-custody, how to protect your private keys, as well as useful information on seed phrases and UTXOs.