Bitcoin self-custody prevents central point of failure risks

A representative of hardware wallet producer Trezor recently shared his view on why self-custody is a valid solution to cybersecurity concerns.

Trezor’s Bitcoin analyst Lucien Bourdon recently told industry news outlet Cointelegraph that self-custody safeguards Bitcoin (BTC) holders against the collapse of centralized institutions — especially now that institutional adoption of cryptocurrencies moves forward.

Bourdon explained that “institutional involvement introduces centralization, with single entities holding large amounts of Bitcoin.” He highlighted that institutional adoption also heightens risks such as volatility and negative sentiment when institutional investors come across major issues or collapse.

Self-custody is the practice of holding cryptocurrency without relying on third-parties to manage one’s private keys. A self-custody user is responsible for safeguarding their private key, losing funds forever if malicious parties or the keys access it are lost.

Trezor and market leader Ledger produce hardware wallets. Devices facilitating safe private key management that allow for signing transactions without exposing keys to internet-connected devices.

By keeping keys on a dedicated offline hardened device — which is what hardware wallets are — users can minimize their exposure to cybersecurity risks and reliably hold their own assets under their own control. The main dangers then become scams and private key mismanagement. This self reliance is quite different from relying on centralized institutions:

“If these institutions encounter problems, investors relying on them may face losses without the protections self-custody provides. […] Over the long term, those in self-custody remain insulated from these risks. By holding their own keys, Bitcoiners protect themselves from these vulnerabilities while still reaping the benefits of Bitcoin’s growing adoption and long-term value.”

A danger that self-custody does not protect against are so-called $5 wrench attacks. This kind of attack refers to a physical attack where an attacker threatens or coerces someone into revealing sensitive information, like a password or encryption key, by using physical force or threats (for instance wielding a $5 wrench menacingly).

One recent example is David Balland — the co-founder of French cryptocurrency hardware wallet maker Ledger — who was recently kidnapped and held for ransom before being released days later. Earlier, Dean Skurka — the president and CEO of Canadian cryptocurrency firm WonderFi — was allegedly kidnapped and released after ransom payment in late 2024.

Earlier this month, Pakistani cryptocurrency trader Mohammed Arsalan was kidnapped wit the involvement of local law enforcement, with the perpetrators successfully extorting $340,000 worth of digital assets. Also this month, a Canadian volunteer moderator of a crypto forum was reportedly targeted in an attempted kidnapping by individuals allegedly planning to torture him to steal his Bitcoin.

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