From cryptocurrency accounting software to crypto wallets, there is a lot of information to navigate. When it comes to storing cryptocurrency assets, cryptocurrency users have long been divided into two different buckets: some people wish to use a self-custody wallet (sometimes called a self-custodial wallet) to secure their own funds and those who prefer to use a third-party exchange or wallet. If you’re exploring the topic of your cryptocurrency custody strategy for the first time or you’re simply looking to learn more about this topic, you’re in the right place.

What Is a Self-Custody Wallet? 

Unlike the leather wallet you keep in your back pocket, crypto wallets don’t actually contain the cryptocurrency funds that you’ve purchased. Instead, cryptocurrency wallets work to secure your private keys that are necessary in order to access your blockchain funds. Types of self-custody wallets include mobile/desktop wallets, smart contract wallets and paper wallets. 

There are popular exchanges such as Coinbase that provide custodial wallets for crypto users. This means these third-party platforms are responsible for keeping your keys safe. When you initiate a crypto transaction, these exchanges use your private key to seemingly automatically authorize the transaction. Custodial wallets are often preferred as the user doesn’t have to worry about the security themselves. However, other people prefer not to trust a third party and like to take control of their private keys instead.

What Are the Benefits of Self-Custody Wallets?

No matter how you view it, whether a corporation or an individual is controlling a cryptocurrency wallet’s private keys, they have unparalleled access to the assets. Some individuals view third-party control as not having full access to the cryptocurrency ownership. Factor in that custodial wallets can often be eyed by hackers and cybercriminals, exposing your assets to potential threats. By having direct control to your private keys, you know that they won’t ever leave your possession. This peace of mind is priceless to many. 

Here are some other benefits of self-custody cryptocurrency wallets:

  • The process of paying with crypto is easy and secure
  • It’s easy to send, receive, or move secure crypto assets to wallets located around the globe
  • It’s secure and easy to exchange one crypto for another
  • Store and backup your assets regularly

Self-Custody Best Practices

If you choose to store and keep track of your own cryptocurrency without the use of a third party or a cryptocurrency accounting software, it’s important to know the best practices so your assets remain safe.

Firstly, always avoid keeping large amounts of crypto on your devices as they can become damaged, stolen, or corrupted. This could result in losing your private keys. Next, always make sure to be diligent about protecting your passwords and setting transaction alerts. You should keep crypto that you don’t interact with often in a hardware wallet and always create more than one handwritten copy of your phrases in various locations. 

Our Recommendation

At Founder’s CPA, we believe that self-custody is an important facet for all crypto users to understand and implement. The last thing you want to do is subject your crypto to hackers or other organizations. If you’re interested in learning more about cryptocurrency self-custody or you need a cryptocurrency accountant to help you ahead of tax season, please contact our team today for a free consultation.

Curt Mastio
Post by Curt Mastio
Nov 22, 2023 3:12:45 PM
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.