Self-Custody Wallets: The Hero of “Get Your Crypto Off Binance” Believers

YEREVAN (CoinChapter.com) — Self-custody wallets become increasingly popular after Binance’s admittance of breaking the US’s anti-money laundering laws and the agreement to pay $4.3 billion in penalty for it.

Let’s look closer at self-custody wallet adoption, the reasons behind its increasing popularity, and the possible risks.

Self-Custody Wallets Are Not First Option

As of 2023, self-custody wallets have seen significant usage and interest. According to Coinweb research conducted in October 2023, Trust Wallet, a popular multi-chain self-custody wallet, had over 60 million users globally and works across 70 different blockchains. Hence, the popularity.

Did You Know? Self-custody wallets, also known as non-custodial wallets, are a type of cryptocurrency wallet that gives users complete control over their private keys. Therefore, users have control of accessing and managing their digital assets. Unlike custodial wallets where third parties, i.e. centralized exchanges like Binance control the private keys, self-custody wallets ensure that users have full authority and responsibility over their digital currencies.

Another widely used software wallet, MetaMask, had over 30 million monthly active users. It is notable for its connectivity to nearly all Web3 decentralized applications (dApps). Additionally, hardware wallets become an increasingly popular option. For example, Ledger Live stands out with over 1.5 million active users.

There were over 4 million crypto wallet users in the US alone as of Q3/2023. Trust Wallet led the market with a 16.86% share (nearly 700,000 users), followed by Binance with 16.40% (680,000 users), and Coinbase Wallet with 14.60% (603,000 users). MetaMask has a 9.31% market share with 385,000 users​​. However, the global picture looks quite different, with Binance leading the pack.

Will the recent legal woes affect the popularity of Binance wallets? If the past is any indication, they will.

Adoption Grew After FTX Fiasco

Following the downfall of FTX, a notable increase in the adoption of self-custody wallets occurred. Trust Wallet, for example, experienced a 140% increase in active users in the days following the FTX incident, with a continuing week-on-week increase in active users.

This trend indicates a growing preference for self-custody solutions among crypto users, driven by a desire for more control and security over their assets​​. The Binance flop could lead to similar results, considering the heavy Binance outflows continue. As of Nov. 24, $1.3 billion had left the platform the previous week.

However, the mass adoption of self-custody wallets reaching still presents challenges. Users need to be relatively crypto-educated to use self-custodial wallets comfortably, which is a hindering factor. As of 2023, self-custody is user-friendly on a large scale.

CZ for Self-Custody! Wait, What?

Ironically, Binance’s ex-CEO Changpeng Zhao (CZ) agreed but urged users not to lose trust in centralized exchanges – the phrase that has not aged well since November 2023.

In detail, CZ held a Twitter Spaces meeting on Dec. 14, 2022, discussing relevant events in the field, the FTX demise, and the wave of client withdrawals from Binance. CZ was asked about the shattered trust towards centralized exchanges, among other questions. The CEO asserted that the distrust is based on generalization, which is bad for anyone.

If you’ve been hurt by a bank, you stop trusting all the banks. I get that. If one political is corrupt, you think all politicians are corrupt. But the fact is because one bank is bad, it doesn’t mean all other banks are bad.

commented CZ.

Self- Custody Wallets Diminish the Need for Centralized Exchanges

Most of Binance’s operations are centralized. However, CZ also asserted that the exchange is “neutral” in its preference towards custody and self-custody solutions while saying self-custody wallets are not risk-free.

For most people, for 99% of people today, asking them to hold crypto on their own, they will end up losing it. Most people don’t keep their security keys safely.

said Zhao in 2022.

Additionally, CZ commented that if “99% of the general population” can hold their custody wallets securely, “centralized exchanges will not exist or probably don’t need to exist, which is great.” But according to the CEO, that’s not the case. People often share their private keys voluntarily without realizing the risks. They might also store sensitive information on a device, which they can lose.

However, the argument on the high risk of custody wallets rings hollow for all the users who opted to store their crypto in self-custody wallets instead of parking it on Binance or any other exchange, for that matter.

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