FTX’s Crash, The importance of Self-Custody Can Never Be Overemphasized.
“I’m sorry….I fucked up.” These were the words of Sam Bankman-Fried, CEO of FTX via Twitter after a massive turmoil hit the crypto market courtesy of FTX exchange. But how did we get here?
On Nov 2, CoinDesk released a detailed report on Alameda’s leaked balance sheet, and it wasn’t looking good. This leaked balance sheet showed that much of Alameda’s $14.6 billion in assets were held in $FTT tokens which is the native token of FTX. This raised speculation that things were not going well at FTX exchange.
It all started when CZ the CEO of Binance dropped the black hammer on FTX via a tweet.
Binance would sell its $FTT tokens, worth at least $580 million, “due to recent revelations that have come to light.”
The token’s price keeled over by 80% in the next two days, and daily withdrawals on FTX exchange rose to $6 billion in only 72 hours. The effect of FTX’s crash on the crypto market goes beyond prices plummeting. Trust in crypto and centralized exchanges are down severely.
Naturally centralized exchanges had created a trust haven for crypto users, despite its custodial mode of service, crypto users usually feel comfortable storing millions and even lifetime assets in these exchanges without being scared of facing dire consequences. To illustrate, centralized exchanges are like a housekeeper whom you know no detail about but at the same time entrust all your household items and assets into its care and travel out on a long journey. You face two choices of consequences on your return, either you lose all your assets or you get lucky to have them intact on your return. The FTX saga is a broader explanation of this illustration as a lot of crypto users have lost assets, and lifetime savings, and other crypto companies crumbling due to high trust in a custodial service like FTX.
Recognizing the heavy impact of the FTX’s saga on the crypto industry brings forth a high need for Self-Custody.
What Is Self-Custody?
Self-custody in crypto can be described as holding the private keys to your crypto assets instead of entrusting them into the hands of a third-party such as a centralized exchange. Remembering that you can never fully trust a housekeeper would propel a house owner to take proactive measures that would give him full control over his assets and properties. In like manner, custodial services cannot be fully trusted, as time and again issues surrounding hacks, fraud, and bankruptcies present us with an ever-great need for self-custody.
This is because crypto holders and investors who self-custody their coins and tokens have complete control over their funds and have them available whenever they need them. With self-custody, holders would have to take responsibility for whatever happens to their crypto assets which implies that extra measures must be taken to safeguard private keys and being vigilant about not sharing private keys with anyone.
Self-custody leaves crypto users with a relaxed mind, even if it comes with a much greater responsibility, there is peace associated with knowing that only you have access to your funds and it is completely unreachable by anyone, not even centralized exchanges.
In terms of self-custody, there are two important essentials. The first is being able to store your crypto assets in a non-custodial wallet, and secondly, ensuring that your wallet private keys are safe and backed up.
Use of non-custodial wallets
Non-custodial wallets may be cold, hot or multi signature wallets and they allow users to hold their private keys by themselves. They are completely different from a custodial wallet where the private keys are held by a third party such as an exchange.
Hot wallets are also known as software wallets. They are connected to the internet and are most times downloaded and installed on a computer or mobile device. Wallets like Metamask, Trust Wallet, are examples of hot wallets.
This type of wallet is an offline crypto wallet that is not connected to the internet. They can be best described as hardware wallets as most of them come in a USB stick like device that is known to have your private keys stored and only allowed signed transactions to be sent from it. Despite its secured nature, they are less convenient because funds cannot be accessed easily as it requires additional steps when interacting with decentralized applications.
Multi-Signature wallets require approvals from multiple user accounts to broadcast a transaction. They mandate two or more private keys to sign and send a transaction. The storage method presses for multiple cryptographic signatures to perform transactions for the wallet.
Imagine a bank vault that requires more than one key to open, there you have a multi-signature wallet.
Realistically, multi-signature wallets provide an extra layer of protection for crypto holders, but they are not without risks as they are way too technical for a common user. Although they may seem like a good solution for recovery, they pose the challenge of being blockchain dependent and are not so flexible to implement in the ever evolving crypto space.
When dealing with self-custody, backups, security, and convenience remain core issues. When you self-custody your crypto, you are responsible for keeping your private keys safe and secure, and this implies that appropriate measures must be taken to ensure that your keys are not lost or stolen, and also a backup mechanism is being implemented in case of unprecedented events.
Moreover, it is highly never advisable to back up your private keys to a google drive, a computer, cloud or an online application as hacks and cyber attacks remain a core problem to deal with.
Also writing down your private keys might just be a way to safely keep your keys secured but the bottom line remains that all possible means of keeping your private keys safe are susceptible to unparalleled events.
Tragic events happen at times we do not expect and with self-custody in question, there is a high need for a robust, secured and more convenient way of storing digital assets without having to bother about issues such as inheritance and recovery.
As noted earlier, self-custody is one of the most desired features of crypto assets. The underlying issue remains that crypto users do not want to be entirely responsible for preserving the assets against attacks and making sure that they are inherited at the right time. A research survey conducted shows that only 48 percent of people have a recovery plan and only 22 percent have created an inheritance plan for their crypto assets. This is a much more convincing reason to venture into a solution that would tackle the problem of crypto recovery and inheritance.
Interestingly, CZ Binance has described the hardest problem in the crypto industry as the wallet. In an exclusive interview on youtube https://youtu.be/jTYJlsJUeWs?t=466 , CZ mentions that the wallet is the main blocker for mass adoption of DeFi as people do not know how to store their private keys securely and also struggle with recovery and inheritance, while this piece of information from CZ proves to be true, a solution has been found that solves problems relating to crypto inheritance and recovery. This solution is Safient Protocol.
Introducing Safient Protocol
Safient Provides a non-custodial protocol that manages crypto secrets securely and conveniently, helping crypto users or their beneficiaries claim crypto assets without trusted human intermediaries. Recognizing that centralized exchanges and third-party players have done more harm than good, thus gives us more impeccable reasons to appreciate the worth of the Safient Protocol.
Safient Protocol eliminates the need for trusted intermediaries as it is a trustless protocol where users can create safes that can be claimed by the beneficiaries with full surety in case of any tragic events. The network and interactions of Safient will function without depending on any single entity. The use of decentralized storage, smart contracts, and cryptography techniques are used to achieve this.
Why Is Safient Unique?
Safent is for everyone. Be it end-users, third-party tools, and services or institutions. Safient maintains resources to help developers integrate their applications to seamlessly interact with safes using their SDKs. In a bid to deliver a robust, securely- audited protocol, Safient has made its protocol generic, meaning that varieties of non-custodial crypto assets recovery and inheritance services can be built or integrated on it. As at this time, Safient is working on three different solutions which includes; Safient Voucher, Safient Safes and the Safient Wallet. It is also of importance to note that custodial wallets and crypto exchanges can also integrate with Safient protocol as this is one of the core use cases of Safient protocol.
What you need to know about solutions currently built on Safient.
As highlighted in the previous paragraph, Safient is a generic protocol offering varieties of solutions and use cases. At this time there are currently three solutions being built on the Safient Protocol. They are Safient voucher, Safient Safes, and Safient Wallet.
- Safient Voucher: Gifting digital assets through gift card vouchers has taken a firm hold in the digital era. Safient is currently building a decentralized voucher service that enables crypto gifting without intermediaries. The Safient Voucher is now live on testnet and would be live on mainnet a few weeks thereafter.
- Safient Safes: Safient safe is a non-custodial safe where users can store their crypto or any other digital secrets or instructions that can be securely recovered or inherited at the right time by a beneficiary.
- Safient Wallet: This is a non-custodial wallet that can be self-recovered or claimed by beneficiaries at the right time without any intermediaries.
Safient believes so much in cryptocurrency self-custody and for this reason have provided a generic recovery and inheritance protocol that can offer a safe and secured solution such that is fully robust and trustless. Undoubtedly, the perks of Safient protocol can never be overemphasized
Learn more about Safient and get involved with the project using the links 👇🏾