Self-Custody sounds like a strange concept when we talk about it because we have been used to deposit our savings at a bank, utilizing brokerage accounts, and storing our crypto in exchanges. By taking our assets into self-custody we assume the full risk of ownership and are responsible to account for them. This might sound as a hassle and in this article we are going to discuss the why you need to be in possession of your crypto.
1.The Ancient Financial System
My journey into crypto started in 2017, but I heard about Bitcoin in 2014 and was not able to explain its existence/mechanisms. I also thought it was a big ponzi and put my old TradFi mask on and ignored it. Maybe it’s a good thing, because I would probably be more annoying than Bitboy crypto .
Years later my career in TradFi showed me how inefficient and bureaucratic big money churning machines called banks are and how they are not always acting in people’s best interest . This is not an attack on all banks/bankers- there are a lot of rotten apples, but also some really kind hearted people and bright people that work in finance. It’s just how the legacy financial system is unfortunately against the small average Joe and Jody. Sometimes we might not see it depending on our life experience, but a lot of people struggle on a daily basis to make ends meet and have no access to credit. Anyways I digress.
Finance is older than our boy Jesus Christ and Wikipedia says it started in the year 2000 BCE. Yet a lot of concepts have been modernized in the past 500 years and money has evolved. From gold coins in the roman era, to fancy italian bankers during the renaissance, to joint stock companies from Dutch and British colonizers, to the tulip craze, to industrial revolutions, to the big banking monopolies, until today.
In the year 2022 we have reached a fully globalized economy with sophisticated products for everyone with access to the internet as well as a world rifled with economic turmoil.
However we are still ruled by large banks, corporations, and a political elite that doesn’t know their arm from their legs. As a result it is estimated that 2 billion people are unbanked, hence excluded from building generational wealth and surviving on day-day basis. Luckily after centuries have passed society now has DeFi, Fintech , and a huge crypto community changing this. All this thanks to the internet which has in turn revolutionized communications.
Did I also mention, we now have pictures of apes in digital collections, ape land, mutant apes, apecoin and a lot of copy cats too? Pretty cool and confusing as hell, but we will talk about this in another post.
Lets get back on track. So after thousands of years of civilization building a financial system, did we thrive? Answer is yes, but a lot of people got left behind. Today it doesn’t have to be like that. Thanks to new developments on web3, digital assets, and on microfinance we really have a chance at changing it all for the better. So are you ready to un-F^&k the world?
But, this does come at a price. The price is to unlearn what we learned before, a reliable internet connection and reading everything you can put your hands on. First of all we need to learn about private property ownership and what it means to be a sovereign individual. Follow me into the next section.
Do you really own all that money in the bank?
Let’s say Joe has $ 1,000 laying around which he wants to save to buy a bike. He goes to the bank and deposits it in his savings account at his favorite bank. The bank says “thank you Joe! You are now earning 0.1% APY on your deposits.” Congrats Joe, you made USD 1 meager dollar on your investment dude…in a year. Meanwhile the bank takes Joe’s hard earned money stripping as a male and lends it out at 3% to Will, the mechanic. At the end of the day the bank gets its original loan+interest ($1030) and they made USD 29 by lending out Joe’s Money (30-1=29). Multiply this by 1 million savers and the same amount of lenders and the bank made a whopping 29 million in profits. Now, I want to be Shroomie Morgan Chase!
Furthermore, banks do not need to have all the deposits on hand. In the US banks are required to have a 10% of the total demand of deposits. So lets say a bank has those $1000 from Joe, they only need to keep $100 on hand to meet their daily limits. This means $900 of Joe’s savings goes to the borrower. This is what is called fractional banking and in a fiat governed world its what has worked..or has it?
According to bank run history we see this system doesn’t work in times of added stress. Just imagine working all those years without your money not working for you and then one day wake up to see its gone. What would you do? The financial system is too big to fail in the US and to some degree this country has a better rule of law than Greece or Argentina, but Americans are never completely out of the water.
What if you come from those countries with poor insurance systems, high currency devaluation and bad policies? Or what if you come from Canada which froze accounts from protesters?
Sadly no one is safe in a system full of abusive governments or intermediaries that play with your money. This leads us to point 2.
Financial censorship is not a new thing, but it has become increasingly important in today’s society. In a day in age where people can get deplatformed for voicing their opinions, it’s not strange to see merchants/payment processors/banks cut off individuals or businesses access to payments.
Historically we saw wikileaks banned by PayPal or the Canadian truckers with accounts frozen. On the other hand Sex Workers , who are trying to provide for themselves have also been censored by payment platforms. The way this happens is because these platforms are centralized meaning they depend on government regulation or pressure. Sometimes nothing illegal has to happen, an algorithm can make an error, or a human can manually shut you off.
3. Unfortunate Circumstances
Last, but not least a war can happen and you may have to escape to safety. See the latest examples of a person moving Bitcoin out of their home in Ukraine in the midst of war panic and banks shutting down.
In addition to this we even saw both Russians and Ukrainians embrace crypto in order to avoid sanctions and/or have a means to transact respectively. Here is an example of the role of crypto and how its playing out in the region.
To summarize we saw 3 main reasons why you need to embrace self-custody. 1) The financial system will screw you, 2) Governments or Financial Platforms can confiscate or block you, 3) War or some random event can take place and you can lose access to your funds.
With cryptocurrency now you can be your own bank and own your keys. You can be borderless, stack your crypto with privacy, and ultimately transact with who you want and when you want.
Friendly Reminder I am a Shroom and nothing is investment/financial advice. Some think I am nice, others like my wit, and you might think I am an idiot for going all in on crypto. All are valid points and all opinions are my own.