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Case Study 3: Your Crypto Exchange Account
Scenario: You are a user of a cryptocurrency exchange like Binance
or Coinbase. You access your account using an email, password, and
possibly 2FA. The exchange holds your private keys and manages
your crypto assets on your behalf.
Self-Custody is Control: You access your exchange account using credentials, but the exchange controls the private keys to your crypto assets. The exchange has authority over your assets because they manage the private keys, which means they can block access or freeze your account as per their terms of service. You are responsible for keeping your account credentials secure, but the exchange is responsible for protecting the private keys and preventing unauthorized access. Enforcement is executed by the exchange through account management tools that can suspend withdrawals, block trades, or lock accounts due to suspicious activity or regulatory intervention.
Self-Custody is a Spectrum: The parties involved are you, the user, and the crypto exchange. The exchange has an unfair advantage because they control the private keys, the most critical element in accessing crypto assets. Since they have the power to revoke your access or use the assets themselves, your self-custody is compromised. This imbalance places you very low on the self-custody spectrum.
Self-Custody is Recursive: Cryptocurrency exchanges often control your private keys, which means they have an unfair advantage over your access to digital assets. If the custody of your exchange account is compromised—either through the exchange freezing assets, a hack, or internal mismanagement—you lose not just your cryptocurrency but also dependent constructs like access to decentralized finance (DeFi) services, staking rewards, or NFTs. The interdependent nature of blockchain assets means that losing control over one crypto wallet can result in the loss of multiple financial streams. Furthermore, the exchange can revoke your access, leaving you vulnerable to losing more than just the assets in your account, such as participation in smart contracts or blockchain-based agreements.
Self-Custody is Control: You access your exchange account using credentials, but the exchange controls the private keys to your crypto assets. The exchange has authority over your assets because they manage the private keys, which means they can block access or freeze your account as per their terms of service. You are responsible for keeping your account credentials secure, but the exchange is responsible for protecting the private keys and preventing unauthorized access. Enforcement is executed by the exchange through account management tools that can suspend withdrawals, block trades, or lock accounts due to suspicious activity or regulatory intervention.
Self-Custody is a Spectrum: The parties involved are you, the user, and the crypto exchange. The exchange has an unfair advantage because they control the private keys, the most critical element in accessing crypto assets. Since they have the power to revoke your access or use the assets themselves, your self-custody is compromised. This imbalance places you very low on the self-custody spectrum.
Self-Custody is Recursive: Cryptocurrency exchanges often control your private keys, which means they have an unfair advantage over your access to digital assets. If the custody of your exchange account is compromised—either through the exchange freezing assets, a hack, or internal mismanagement—you lose not just your cryptocurrency but also dependent constructs like access to decentralized finance (DeFi) services, staking rewards, or NFTs. The interdependent nature of blockchain assets means that losing control over one crypto wallet can result in the loss of multiple financial streams. Furthermore, the exchange can revoke your access, leaving you vulnerable to losing more than just the assets in your account, such as participation in smart contracts or blockchain-based agreements.