Why Do We Need to Self-Custody our Digital Assets
Self-custodial wallets are ways to store cryptocurrency that give users full control over their own private keys and assets. No one, not even the wallet provider, has access to the user's private key. This means that the user always has full control over his or her cash. In my opinion, self-custody is a novel way to protect your assets when there is a lack of trust between intermediaries. However, self-custody needs to be balanced with the correct set of measures such as protecting and safeguarding private keys as some users may find later that they may have misplaced their private keys leading to the loss of their digital assets.
On the other hand, a custodial wallet is run by a third party that holds the user's private keys and, by extension, their digital assets. Custodial wallets are like banks, where they are in charge of your money, which you can get back at any time as long as you haven't broken any rules that would stop you from getting your money back. However, if the custodian goes bankrupt, it may lead to investors losing all of their investments.
Compliance at the Forefront - Understanding “Know Your Transaction”
The term "know-your-transaction" and “know-your-customer” refers to a procedure used by financial institutions to compile data on their customers' transactions in order to determine compliance with anti-money laundering laws. In doing so, it determines whether or not the exchange of money in question is legitimate and free of any ties to illegal activities in the financial sector. In my opinion, a digital wallet also needs to comply with regulations around money laundering and financing terrorism by implementing digital identities to curb any misuse of the application. A wallet that focuses on privacy, compliance and security is an ideal suite which should be provided to users.
In my view, it is critical for non-custodial wallets to have digital identities and controls to ensure that the application complies with local laws and does not help criminals in laundering proceeds from illegal activities, hacks, or drug smuggling.
Digital wallets that focus on privacy by design and compliance may be the future. Even though for many, these two terms may not go hand-in-hand. Applications can be created which are decentralised in nature, comply with local laws as well as protect personal and sensitive data.
What is Nexera ID by AllianceBlock and How does it Help Users to Self-Custody Assets
AllianceBlock, a web3 company for the DeFi infrastructure that creates interoperability between decentralised and conventional financial systems, has introduced Nexera ID. Nexera ID is an innovative wallet system that encourages personal security, privacy, and asset possession by its users, and it does so by use of a programmable smart wallet.
Nexera ID is a cutting-edge digital wallet that uses a special digital token known as a MetaNFT to safely store your digital assets and identification information. Users may establish their own rules for the handling of digital assets, the disclosure of personal information, and the performance of wallet operations, such as the activation of recovery mechanisms.
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Nexera ID is a self-custodial smart wallet with extensive recovery capabilities that are built on top of Nexera Protocol and makes use of "soul-bound" MetaNFTs. Organizations and companies may utilise ZKPs to authenticate and verify a user's identification without disclosing personally identifying information by using Nexera's ID integration with Know-Your-Transaction (KYT), Know-Your-Business (KYB), and Know-Your-Customer (KYC) verifications. An open-source trustless identification verification (TIDV) system enables this by connecting to various know-your-customer (KYC) services. In my opinion, this is a key feature which helps users to comply, custody and secure their assets based on best industry practices.
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Image credits: Muhammad Asyfaul, Ferhat Deniz and Matthew Henry.