We’ve seen what FTX did to everyone. Now they’re all saying “Not your Keys, Not your Coins” – but what does it mean? Here’s what to know before the next major crypto meltdown.
“Not your keys, not your coins”, or “not your keys, not your crypto” is a saying that refers to the belief that investors cannot know how much money they actually own – unless they personally have access to a wallet via key ownership, or, via “self-custody”.
Popularised over the years, the saying has been uttered around by users upon the occasion where crypto exchanges or third-party investment managers, with intention and not, have lost up to millions worth of user funds due to platform exploits, or theft.
To put into practice, if your digital assets are held in a wallet with a key you do not have possession and/or control over – or if the wallet is in someone else’s custody, it does not guarantee 100% that you can access or use the assets in that very wallet.
The “key”, refers to what is known as a “private key”, a hash of characters (and maybe more) that acts as a password to be able to use a wallet. If you are in possession of a wallet’s key, only you can access the digital assets held in that wallet.
This is what is known as a self-custody wallet. Self-custody wallets can take the form of internet browser-based wallets, mobile wallets, and even physical hardware wallets.
In the case of centralised exchanges (CEX) like FTX, users had their wallets and keys held by the crypto lender. This means that if a user wants to access funds, they have to depend on FTX to send it – meaning that you are not 100% in control of your own assets. This makes FTX a middle man, and they are in control of all of your holdings on the platform.
Some crypto adopters don’t mind outsourcing how their wallet is handled, finding centralised exchanges, investment managers, and custodial solutions like FTX perfect for saving the trouble of going through complicated, technical processes regarding crypto.
While learning how to use a self-custody wallet is understandably difficult, it all seems like a convenient solution to get into crypto with platforms like FTX – until FTX hit its “liquidity crisis” last week.
When FTX paused its withdrawals two weekends ago, users lost access to using their crypto. In the case of centralised crypto exchanges, if an attack, hack, or collapse were to happen to such exchanges, such holdings will be lost, indefinitely.
Although it may be difficult to put your trust into CEXs and asset managers again after what’s happened with FTX, you’re not alone – everyone’s looking for a better solution together.