The Risks of Crypto Self-Custody Are Increasing for Investors

Deciding whether to invest in crypto long-term is a big move, but figuring out how to store digital assets securely might matter even more. Recent wildfires in California have brought this issue into focus. Some crypto holders shared stories online about losing their Bitcoin after storage devices or metal seed phrase plates were destroyed in the fires. While individual claims can’t always be confirmed, the incident highlights the very real risks of managing your crypto.

There are generally two types of crypto storage: cold wallets (offline) and hot wallets (online). The latter, like those offered byBlockchain.com or Coinbase Global Inc. (NASDAQ: COIN), are internet-connected and convenient for trading, but they are susceptible to hacking.

On the other hand, cold wallets involve hardware devices or simply storing your recovery phrase, called a seed phrase, on paper or metal plates. These are considered safer from cyber threats, but as the wildfires showed, they’re still at risk from physical damage.

Some investors prefer not to rely on third parties for storage due to concerns about institutional failures. High-profile exchange collapses, like FTX, have only increased interest in self-custody. But doing it yourself comes with its own challenges. If you lose your private key or seed phrase, there’s often no way to recover your assets.

Casa CEO Nick Neuman points out that most people rely on a single private key—one point of failure. If that key is lost or destroyed, the Bitcoin is gone. Even storing seed phrases on supposedly fireproof metal plates isn’t foolproof. They can be lost, damaged, or impossible to retrieve in a disaster.

To reduce risk, some companies now offer multi-signature solutions. These setups split control across several devices or keys, so losing one doesn’t mean losing everything. For example, Casa’s system allows a user to hold most of the keys while a backup is kept with the company. As long as you can access part of the setup, your crypto can be recovered.

Other companies like Block and Coinbase are creating wallets that balance security with ease of use. Block’s Bitkey, for example, combines a mobile app with hardware-level security and built-in recovery tools, helping users avoid permanent loss due to misplaced keys.

However, security doesn’t stop with tech. Experts say investors should treat crypto like any other valuable data—back it up, spread out risk, and plan for the future. That includes preparing for inheritance. If something happens to the owner, accessing crypto can be a nightmare without the right documents or plans in place. Some companies now offer inheritance features, highlighting how serious the issue has become.

Ultimately, as Neuman puts it, most people only take action after a crisis. But with digital assets potentially worth a lot, it’s smarter to plan ahead and protect them before something goes wrong.

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