A warning to the crypto community about self-custody was issued by Binance CEO Changpeng “CZ” Zhao, who said that 99% of people who choose to take possession of their cryptocurrency would likely lose it somehow.
CZ has long supported self-custody, calling it a “fundamental human right,” but has always urged users to “do it right.” In February 2020, he published “CZ’s Tips” on self-storing cryptocurrency.
On December 14, the Binance CEO urged caution for those using self-custody wallets, arguing that security keys are frequently not stored securely, backed up, or adequately encrypted.
“For most people, for 99% of people today, asking them to hold crypto on their own, they will end up losing it.”
CZ stated that holding cryptocurrency in one’s wallet is “not risk-free” and that “more people lose money holding their own — lose more crypto when they’re holding on their own than on a centralized exchange.”
“Most people are not able to back up their security keys; they will lose the device, They will not have the proper encryption for their backup; they will write it on a piece of paper, someone else will see it, and they will steal those funds,” he explained.
Additionally, the Binance executive stated that “if a person passes away, they don’t have a way to give to their next of kin,” In contrast, custodians like Binance can implement a “standard operating procedure” to solve that problem.
According to the Binance executive, “different solutions have different risk profiles,” and it is up to the user to decide what is best for them.
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Irrespective of the fact that the majority of Binance’s operations are “centralized,” CZ reiterated that the company is “neutral” on custody and self-custody solutions, having stated in an earlier Twitter Space discussion on November 14 that he’d happily shut down the centralized cryptocurrency exchange if users moved to decentralized alternatives.
“If we can have a way to allow people to hold their assets in their custody securely and easily, that 99% of the general population can do it, centralized exchanges will not exist or probably don’t need to exist, which is great,” CZ said.
Binance’s latest Twitter Spaces event comes at a difficult time for the exchange, which has seen significant withdrawals due to concerns about its balance sheet and impending litigation.
According to the Wall Street Journal, there were several red flags in Binance’s proof-of-reserves audit on December 11, and Reuters reported on December 13 that the US Department of Justice is nearing the end of a three-year investigation into Binance and may file criminal charges.
According to data from blockchain intelligence platform Glassnode, the last few days have seen a high volume of stablecoin outflows from the trading platform, including $2.2 billion in outflows of stablecoins Binance USD (BUSD), Tether (USDT), and USD Coin (USDC) over 24 hours between Dec. 13-14.
Interestingly, Bitfinex’ed — a long-time Tether critic — shared a screenshot to its 98,000 Twitter followers on December 14 of Binance offering 50% APR on staked USDT to its customers, alleging that the exchange is looking to shore up its allegedly rapidly depleting stablecoin reserves.
CZ attributed the weakened market sentiment — particularly about custodial solutions — to the catastrophic fall of FTX in the most recent Twitter Space discussion.