A Crypto User’s Guide to Self-Custody

For anyone who has interacted with both, a typical experience in decentralized finance (DeFi) can be significantly more complicated than in traditional finance. Even the savviest technophiles would admit to not always having the smoothest of experiences in the world of smart contracts and intricate plugins.

The Interface Problem

A walkaround in traditional finance would look like this: you sign up on Robinhood, deposit a few bucks, leverage their network of market makers to buy those Gamestop shares, and ride those shares to the moon (and back). Easy peasy, one would say. However, the landscape in decentralized finance is different.

To buy some BONK on Solana, you would need to sign up on a wallet – say Sollet – write out your key phrase, and tuck it away from everyone. You then need to deposit some SOL by copying a long string of numbers and letters from Sollet and pasting it on your funding platform – often, a centralized crypto exchange.

With this SOL, you would connect your wallet on Sollet to Raydium, where you can swap your SOL for some BONK. The process is more delicate than this, but you get the message. User interfaces and experiences in traditional are way more user-friendly than those of its DeFi competition.

The Problem of Security

Let's say you are not like me and find it relatively easy to navigate all of this complexity or have built the muscle memory for it on years of running a shitcoin hedge fund. There is always the issue of security waiting on the other end. You might be able to protect yourself against all targeted exploit attacks, but you are not exactly sure your wallet provider can.

Last week, Ledger's DeFi connector was compromised. A hacker had attacked the front end of multiple decentralized applications (dApps) on the wallet service. The exploiter breached major dApps whose APIs had been conveniently plugged into Ledger's interface, such as SushiSwap, Phantom, and Revoke, and stole at least $484,000 in digital assets.

Ledger's post-mortem admitted that the exploit resulted from a former employee falling victim to a phishing attack, which allowed the hacker to upload a malicious file to a javascript code stack Ledger shared with dApps. And Ledger is not alone in this worrying situation.

In recent times, Electrum, Trezor, Trust Wallet, and even Metamask have had issues with protecting user assets. In simple terms, the message they are unknowingly passing is that you might be able to guard yourself properly but still lose money because they mistakenly forgot how to guard themselves properly.

This is a strange place to be in, given that you left centralized platforms on the back of "not your keys, not your coins," only to lose those coins still because someone sold a weak lock to you.

The Problem with Fiat On and Off Ramping

Since non-custodial wallets are built to offer a gateway to decentralized finance, there would always be a problem of getting conventional money in and out of these wallets. Centralized platforms have filled in this gap for so long, but what happens if one – in the true ethos of the blockchain – wants to plug out completely from the world of intermediaries? How can one get money on the blockchain without hitting a Paypal or Visa API where all their details must be KYC'd beforehand? How can one swap their USDt to USD without being required to integrate their Sendwave account?

For Ledger users who were affected by the issue, the bad news is that they might not get their lost assets back. The good news is that they can explore a few other great options elsewhere.

Alternative Options for Self-Custody Users

Komodo Wallet:

Komodo is an interesting choice for one main reason – fiat on-ramps – and two other exciting reasons – a cross-chain DEX integration and a multi-blockchain bridge. Users on the Komodo wallet can easily put their cold currencies in bank accounts to work on red-hot DeFi platforms by utilizing third-party platforms like Ramp and Banxa, which are directly built into the wallet.

Ramp is a platform that is available in 150+ countries and regions and currently supports over 40 fiat currencies and 90 cryptocurrencies. At the same time, Banxa is a similar option that has been trusted with approximately $3 billion in transactions to date. Getting money on DeFi became a whole lot easier. Get money off without using centralized exchanges? Crickets for now.

As mentioned earlier, Komodo offers two other support services, which are important for interoperability, an area that has proven to be a serious headache for the industry over time. On Komodo, users have access to a DEX that sources liquidity across multiple blockchain networks and returns great prices for assets, whereas the bridge aids transfer across these different blockchains.

This feature does not only significantly save costs for traders but also improves capital efficiency across DeFi as a whole. If you are new to the industry or an OG exploring options, you might want to check out Komodo.

Blockchain.com:

If you were to think of a wallet service provider that has been around for a while but has not been involved in major scandals, Blockchain.com will immediately come to mind. The company started by providing a blockchain explorer in 2011 but soon built a wallet that accounted for over 28% of all Bitcoin transactions between 2012 and 2020. One of the wallet’s unique propositions is an easy integration with its in-house centralized exchange to help with fiat off-ramps (for those who want it). It also provides a smooth fiat on-ramp service with its Blockchain.com Pay and has exhibited a relatively long history of resilience and security. Blockchain.com is a good option for crypto owners.

Cold Storage Options:

For users who do not actively need access to their coins or investors who have their skin in the long game, cold storage alternatives could be great choices. Ledger, Safepal, and even Trezor's hardware wallets have proven resilient for a while now and could be considered.

The walk to financial industry-grade security and ease of use for non-custodial wallets has been slow. This is mostly due to the complexities involved in design and implementation. However, it is a necessary one given how much that would aid wider adoption and solidify the goals of DeFi to disrupt today’s financial services industry effectively. At the current pace of innovation, I believe the breakthrough point is close, as we should continue to support companies who are putting in the smart work.