The Spectrum of Crypto Custodianship: Why Non-custodial Wallets Are Attracting Users

First published on Hackernoon, but I thought I’d share on my own blog as well.

When even my septuagenarian grandfather is asking me how much Bitcoin I have, it’s clear that crypto has gone mainstream. And interest is only growing. Not only as a speculative instrument, but also as a means to store value, accumulate wealth, and hedge against inflation.

In other words, people are finally beginning to get it.

As with any burgeoning industry, however, increased interest results in an increased propensity for scams, fraud, and unethical behavior. Complex terminology and unfamiliar user flows mean a steep learning curve for new entrants into the space.

Recognizing opportunity but too risk-averse to dive in head first, newcomers often start with what they know.

Given the popularity of fintech over the past two decades, “what they know” tends to be centralized financial companies with easy onboarding and smooth, user-friendly interfaces.

Exchanges or service providers falling into this category will hold your private keys, so you don’t have to worry about the underlying complexity, but in return, you must trust them to act in your best interest.

But as everything from Mt Gox to FTX has shown, custodians don’t have the best track record.

Then again, going the self-custodial route is also fraught with challenges. Self-custodial may mean you control your private keys and have full command over your crypto, but equally, it means that if you lose access, there’s no backup.

As a result, up to 25% of all Bitcoin is lost forever, and that’s not even accounting for all the other tokens in circulation.

Non-custodial has arisen as a happy medium – neither you nor the service provider fully controls the crypto. Instead, the keys are either segregated (multisig) or sharded (MPC) across multiple entities, and there needs to be consensus to make transactions.

It’s the best of both worlds – a simpler, friendlier user experience paired with top-level security.

What problem are non-custodial wallets solving for users?

Ultimately, it boils down to the eternal battle between security and convenience. If we place security, represented by self-custodial wallets, on one side, and convenience, represented by custodial wallets, on the other, non-custodial is the spectrum in between.

Different wallets behave in different ways, leading to endless debates within the industry as to what actually constitutes “non-custodial.”

In my definition, it’s where no single entity holds the keys, but the majority of the decision-making is with the user. Depending on the wallet, this is achieved in several ways. Multi-sig, for example, requires more than a single private key for validating a transaction.

These keys are held by predetermined entities, and each must sign a transaction to validate its authenticity.

Multi-party computation (MPC), on the other hand, uses a single private key sharded and distributed across several entities – to sign a transaction, all involved parties must sign with their share of the private key.

While this may sound complicated, the user experience is much more straightforward than that of self-custodial wallets. The complex blockchain operations are executed in the background, while the user enjoys a streamlined flow.

And in the case of MPC, keys can be recovered in emergencies, providing a solution to the limitation of self-custodial wallets wherein users who lose their keys lose their crypto.

But even so, non-custodial wallets are not without their own drawbacks.

Challenges of non-custodial wallets

Let’s return to the question raised in the previous section – what makes a wallet non-custodial as opposed to custodial? If part of the key is with a custodian, is it custodial? Who decides?

My personal take on this – and I’m very much aware that I’ll be at odds with the maximalists for my position – is that it boils down to procedure and intent.

If it’s exceedingly difficult for a wallet provider to take control of a user’s funds or requires multiple laws to be broken, I would argue that it’s non-custodial.

Yes, presumably if the entire company offering wallet technology were to collude amongst themselves and with third-party platforms to take ownership of a customer’s crypto, it could potentially be possible, but then again, keys could also be brute forced – just the chance of success is minuscule.

The same goes for collusion. And if we start down this wormhole, where does it end? Is the cloud or data center in which the keys are stored a custodian? Even with paper wallets, there have been scandals in which the paper wallet generator was found to be stealing keys.

The other side of the argument is whether complicated security measures actually address a user’s needs more than the convenience of abstraction.

On one hand, you’ve got your keys held by a known, regulated custodian – which you can monitor for signs of trouble and withdraw or exchange into fiat – or on the other, you have a non-custodial wallet that you might not fully understand, possibly resulting in the accidental signing of illegitimate transactions or even irrevocably losing access to your keys anyway.

The elephant in the room – regulation

Inevitably, the discussion turns to regulation. Having regulated custodial companies and required stringent know-your-customer (KYC) and anti-money laundering (AML) processes, paired with thorough transaction monitoring, regulatory bodies are now turning to non-custodial and self-custodial wallets.

Recent UK and EU legislation is proposing to implement the same measures for all wallets across the board, meaning wallet providers, whichever level of custodianship they adhere to, will no longer be able to claim exemption from identity verification or the travel rule.

So, what do customers want?

While there will be the inevitable maximalist who wants ultimate security and no regulation – and will be prepared to suffer a lot of hassle for the privilege – the majority of customers, and especially the large untapped majority, want their own degree of compromise between security and convenience and will be looking for the wallet that meets their needs in the most effective way.

It’s always worth remembering that it’s a spectrum – as newcomers to the industry become increasingly familiar with the technology, they may progress from a custodial introduction to full self-custody, or perhaps the non-custodial alternative will prove to be the winning choice.

Bitcoin, the forerunner to all other cryptocurrencies, was initially conceived to offer new possibilities outside the status quo. So isn’t it fitting that the spectrum of wallets that have sprung up to accommodate crypto equally offers a multitude of possibilities?

It’s precisely this freedom of choice that will deliver mainstream adoption.

Running the Sutton Runners 5k Summer Handicap

My friend — incidentally, the one I went to Prague with — and I have a motto. Do what you see. This has gotten us into all sorts of adventures — from breaking into an old Soviet amusement park and taking a spin on the Ferris wheel to being given VIP tickets to our favourite band. In other words, we always have a good time.

But yesterday, I lived up to the motto in the most unusual of ways. I spontaneously decided to take the dog to a beautiful park not too far away from where we live. We had been out walking and running through the endless green fields for nearly two hours when I happened across a group of people who looked awfully familiar.

It was the Sutton Runners, i.e. the running group I technically belong to. I debated whether to hide or whether to go say hello — ultimately, my curiosity (and good manners!) won out. Turns out, they were preparing to run the second of four 5k summer handicaps. Basically, each participant tells the organiser his or her predicted time, runs without a watch, and is ranked not on their finishing time, but rather on how accurate their estimate was.

I figured I might as well — I had a sports bra and shorts underneath my dress, so I whipped it off, left the dog with my husband, who had conveniently shown up at the carpark right as the starting whistle was about to go off, gave a predicted time of 25:00 and I was off. The good news — I finished first of the women and second overall in 23:43. The bad news — I finished 15th out of 17 when it came to accurately predicting my time.

Ah well, better luck next time. It was a great evening run in wonderful summer weather — the perfect follow-up to my last run in Prague. I’m feeling much more energised and motivated, so maybe my claim at the beginning of the year that this will be my year to get back into running more seriously will finally come to fruition. Here’s hoping!

Travels through Czechia: Prague, PQ

Whenever I write reviews or travelogues, I try to make them useful – strange, given that I mostly write for myself. But doing so often neglects the emotion behind each experience. For me, Prague has always held a whirlwind of emotions – mostly pure, unadulterated joy, but also wistfulness, melancholy and romanticism.

And so it was this time. The first few days passed in exuberance. I was meeting my oldest, closest friend, with whom we’ve made a million memories, from hiking the Lake District to exploring the Hague to countless others I haven’t recorded here. We’d failed to meet all of last year due to Covid – hers, mine, hers again – so this was a reunion for the ages.

Our first night was ours alone. We spent a few hours catching up in the hotel and over vinho verde in a nearby bar. But the next day was spent in excellent company. I’m lucky enough to have a (former) colleague who’s local to the area and was kind enough to show us around – I’d even say he massively outdid himself. We visited historical landmarks, climbed towers, cycled along the river, played darts and table tennis, ate delicious vegan food, and watched the sunset from the park in Vyšehrad.

The next day was spent traversing the city in search of good beer and traditional Czech cuisine. And admiring the cityscape from our rented pedalo, of course. In the evening, I joined my former colleague for a 12km run through Prague’s parks and promenades before reuniting with my friend at an open air market selling beer from local breweries.

Our penultimate day was spent relaxing – we visited the site of the Prague Quadrennial, but didn’t go to any exhibitions, preferring instead to read and paint by one of the hangars. I also had the chance to stop by Bitcoin Coffee to purchase a lemonade with Lightning. For our last dinner, my friend took me out to a fancy restaurant where the meal was accompanied by piano music. Unfortunately, the pianist took a shine to us and attempted to win us over by playing patriotic Russian songs, but luckily our lack of interest subdued his enthusiasm and he quickly disappeared.

The next stop was no less eventful. As we sipped piña coladas (or some variation thereof), a Norwegian with a strong American accent challenged my friend to a chess game. And promptly lost. After defeat, he didn’t seem keen to stick around, so we took over the chess table and my friend shared her skills. We danced our way across the bridge and back to the hotel, basking in the positive emotions.

The last day – for which we were only together until lunchtime – was spent immersing ourselves in art. After breakfast, we made our way to the Kunsthalle Praha to visit the Bohemia exhibition and catch a short film showcasing Nan Goldin’s photographs. Though I love bohemian aesthetics and find the contrast between artistic poverty and fashionable glamour fascinating, there’s something I can’t quite put my finger on that bothers me. It almost feels as if this quest for meaning in excess is a superficial veneer for emptiness. Or maybe I’m just jealous I’d never fit in with the counterculture cool.

After dropping my friend off at the bus station, I still had a few hours to kill before my flight home, so I returned to Prague Quadrennial (or PQ for short) in hope of finding a cat. The Giant Cat by Chilean artist Catalina Gato, to be precise. The Guardian had done a review of the festival, and of course anything feline was immediately an attraction. So I bought my ticket and started searching through the three international exhibition rooms.

I had just perused the series of performances by Israeli female artists when I happened across Ireland’s The Next Four Years – a film and accompanying dialogue about where theatrical set design is and should be headed in the near future. Despite being surrounded by academics and theatre students (practically card-carrying creatives), I found myself with quite a bit to contribute, and felt incredibly validated by the enthusiastic agreement on behalf of my interlocutors.

After an hour of discussion, the curator wrapped up our conversation and I was free to continue my search for the cat. After walking through sensory rooms, interacting with the tactile exhibitions, and observing short performances, I still hadn’t found it. But as I was waiting to go into the Portuguese room – outwardly covered in orange fur, but made up of beautiful lights inside – an American girl struck up a conversation. It was through her and her friends that I learned that the cat was fifteen minutes away. 

I only had an hour left, so I rushed to the Trade Fair Palace. While the cat was fantastic, I got a lot more than I expected as I watched Mexico’s performance from a height of five stories, walked into a yellow womb as designed by Spanish artist Marta Pazos, and listened to reflections on the devil inside a pitch black room intersected by neon lights. Literally enveloped in art, performance, movement – I was in awe. It’s moments like these that I fall in love with life. 

Visiting Prague is always an adventure. I’m so unbelievably grateful to have had the opportunity to visit Prague Quadrennial and I know I’ll be back. Maybe in four years, maybe in eight, but until then, I’ll treasure the few hours I spent at the festival and use it as inspiration for my own artistic inclinations. 

Prague Quadrennial runs until 18 June.

Review: Under the Kundè Tree

Colonisation is horrific. I know I’m stating the obvious, but it boggles my mind that we live in a world where the injustice continues unrecognised — people mock reparation payments as if centuries of colonial rule didn’t decimate the colonised countries. And the worst part of it is that this is still recent history.

Though I didn’t register the full impact watching Under the Kundè Tree yesterday had on me, I realised this morning when I began tearing up while recounting the plotline to my mother. The play tells the story of a young woman growing up in 50s Cameroon, set against the backdrop of the hidden war — the Cameroonian War of Independence.

Spoilers ahead

Sara, the protagonist, is caught between loyalty to her family and desire to follow her heart. Ultimately, she chooses her own way, marrying a UPC freedom fighter and working for the rights of Cameroonian women. But as the story evolves, it takes a dark turn — the French denounce the “communists” and brutally quash their rebellion. Arrested, imprisoned, raped and tortured, the play ends with Sara embracing a fellow prisoner as both women shout “kundè!” — “freedom” in Basa — as they are murdered.

The staging, the actors, and the story left an absolutely unforgettable impression. Set in an intimate venue — the little stage at Southwark Playhouse — the events of 1955 came alive before our eyes. I can only hope that former colonisers will soon atone for their sins and avoid perpetuating historical injustices.

Under the Kundè Tree is at Southwark Playhouse until 17 June.