Binance’s CEO Changpeng “CZ” Zhao has issued a warning to the cryptocurrency community against self-custody, stating that he believes 99 percent of those who make the decision to store their cryptocurrency on their own will lose it.
CZ has always defended self-custody, calling it a “basic human right,” but has always advised users to “do it well.” In February of 2020, he released a piece titled “CZ’s Tips” with advice on safely keeping cryptocurrency at home.
The Binance CEO reiterated his earlier warning about the dangers of self-custody wallets at a Binance-hosted Twitter Spaces on December 14. He said that security keys are not always maintained safely, backed up, or properly encrypted.
When asked to keep cryptocurrency on their own, “most individuals, for 99% of people today, will end up losing it.”
CZ reaffirmed that storing cryptocurrency locally is “not risk-free,” and hypothesized that “more individuals lose money on their own — lose more crypto when they’re holding on their own than on a centralized exchange.”
When it comes to security keys, “most individuals are not able to back them up; they will lose the device […] He went on to say, “They won’t have the right encryption for their backup, so if anybody finds out about it, they can take their money.
In addition, the Binance executive said that “if a person goes away, they don’t have a method to distribute to their next of kin” with self-custodied assets, while custodians like Binance may develop a “standard operating procedure” to address this issue.
The executive from Binance came to the conclusion that users must evaluate “various solutions have different risk profiles” to choose the optimal course of action.
CZ reiterated that Binance was “neutral” on its preference for custody and self-custody options, despite his previous statement in a Twitter Space debate on November 14 that he would cheerfully shut down the centralized cryptocurrency exchange if users shifted to decentralized alternatives.
Centralized exchanges “will not exist or probably not need to exist, which is excellent,” CZ added. This is because “if we can establish a means to enable individuals to retain their own assets in their own custody safely and readily, then 99% of the general public can do it,” he said.
The next Twitter Spaces event from Binance comes at a moment of turbulence for the exchange, as it has witnessed huge withdrawals over worries about its balance sheet and possibly upcoming lawsuits.
Binance’s proof-of-reserves audit reportedly raised red lights, according to the Wall Street Journal, on December 11. On December 13, Reuters reported that the U.S. Department of Justice is wrapping up a three-year investigation into Binance and may pursue criminal charges.
Data from blockchain intelligence platform Glassnode shows that during December 13 and 14, 2018, $2.2 billion was removed from the trading platform in the form of stablecoins Binance USD (BUSD), Tether (USDT), and USD Coin (USDC).
Interestingly, on December 14th, Bitfinex’ed, a long-time Tether critic, tweeted a snapshot with its 98,000 Twitter followers showing Binance offering 50% APR on staked USDT to its users, saying that the exchange may be seeking to shore up its purportedly fast-dwindling stable currency holdings.