You've been working hard slowly building up your crypto gains. You've had some big wins and also suffered some losses, but that hopefully isn't what keeps you up at night. Knowing where to store your assets and worrying whether or not they are truly safe likely does.

So, where should you store your crypto? This is a question that separates the casual investors from the serious ones. And truthfully, there is no “one-size-fits-all” solution here.

But one thing you need to keep in mind is that the decision to store your digital assets yourself (self-custody), or with a third party can have a massive impact on how you build wealth, your peace of mind, and even your entire financial future. Here's everything you need to know.

What Self-Custody Really Means

To put it simply, self-custody simply means that you are the ONLY one in control of your private keys. That means you are the bank and you are the vault. 

Think of it like having a couple of gold bars under your mattress instead of in a bank safe deposit box. You are in total control, but the main drawback is that you are also responsible for everything (including keeping it safe).

Understanding how a crypto wallet works is essential here. Whether it's a hardware wallet or software wallet in which only you know the seed phrase, this means you are practicing self-custody. No one can freeze the account; no one can tell you what you can do with your assets; and no one can deny you access for any reason.

That is very powerful, and for many people, this complete ownership is one of the core principles that the cryptocurrency industry was built upon. For everyday people, it’s an empowering concept, but in reality, it can be a heavy and stressful burden to carry, especially if you're unprepared.

The Case for Self-Custody

So, why do millions of investors, especially the crypto-natives, swear by self-custody? Let's dig into the key benefits:

• You own your assets outright. Not your keys, not your coins. You've heard that phrase a million times. Why? Because it's the truth. When you hold your own keys, you don't have to trust any corporation or any other human with the security of your wealth. You are eliminating counter-party risk altogether.

• There is no platform that can fail on you. Remember Mount Gox? FTX? Celsius? Thousands of investors lost everything because they trusted a third-party with their assets. Self-custody means you have nothing to worry about when there is a collapse of a crypto company or platform. Your assets are yours regardless of what’s going on in the rest of the market.

• Privacy. Third-party platforms know everything there is to know about your holdings, your transactions, your trading patterns. Most of them are required to share that information with governments and law enforcement agencies. Aside from that, many also share your details with marketers, or worse, your information gets leaked during a hack. Self-custody gives you privacy in your financial life.

• You control your own timeline. Need to move assets on Sunday at 3 AM? You can. Want to make a time-critical trade? No waiting for the third-party to approve a withdrawal. You operate on your timeline, not someone else's business hours.

The Brutal Reality of Self-Custody

But of course, there is some real downside that needs to be considered. When you have full custody over your coins, the harsh truth is that one mistake can mean that all of your coins are gone forever.

If you lose your seed phrase and can't access your account, there is no customer support to help you get it back. If you make a mistake and send it to the wrong address? Gone.

An estimated 3-4 million BTC (about 20% of the supply), is believed to be lost forever. This is mainly due to people making these sorts of mistakes and losing access to their wallets forever. That's billions of dollars worth of assets vanished because of forgotten passwords and damaged/lost hardware wallets.

You also need to become your very own security team. You have to think about phishing, malware, physical theft, and social engineering. One slip and your whole portfolio can be gone. The technical learning curve is also a problem for many new users coming into the space. If you aren't technically inclined, setting up proper self-custody can be overwhelming.

Understanding Third-Party Storage

Third-party storage refers to trusting a company to hold your assets for you. Think of the major crypto exchanges such as Coinbase, Kraken or Gemini holding your private keys on your behalf.

This is similar to putting your cash into a regular bank. They keep the keys secure, they have the insurance paid up, they handle all the technical details. You just log in with your password and it all works nice and smoothly.

For many investors, particularly those who are new to this, this method feels infinitely more comfortable as it is much more similar to how they interact with Web2 companies.

Why Third-Party Storage Makes Sense

The main benefits of storing your assets with a third-party is the ease of use. You get an account, put funds in – and you’re good to go. There are no hardware wallets to buy and no seed phrases to hide.

Another big benefit is that they have customer support. Forgot your password? Reset it. Locked out from your account? Call customer service. Worried about suspicious activity? There is usually a security team who will investigate any issues on your behalf.

You also get live and instant access to markets. Since your coins are already on an exchange, you can trade on any market move you want. You don’t need to transfer funds from cold storage and wait for confirmations. Overall, it's easier and more comfortable.

The Dark Side of Third Parties

The glaring flaw here is that you have to trust others with your money. As we have seen time and time again, platforms fail. And just because they are huge household names, it doesn't make them immune. Again, just look at Mt. Gox or FTX as an example.

Platforms can and do get hacked. They shutdown and freeze accounts, make limits to withdrawals, and comply with government confiscation orders. They go bankrupt, and you become an unsecured creditor chasing after dribs and drabs.

In other words, your assets are not really yours. They are mere IOUs. The platform says you own X amount and you’re depending on them to honor that claim.

Final Word

If you're in the crypto arena, it's important to keep in mind that you're investing in a technology that gives you financial control and sovereignty. Don’t give that control away carelessly. But at the same time, don’t allow paranoia to stop you from using your funds and enjoying many of the amazing services and platforms that are out there.

Self custody gives you control and security, but it also comes with more responsibility for some technical chops. Third-party custody offers much more convenience and support, but the trade-off is that you need to trust the people you're "lending" your money too.

The best bet is to use a balanced strategy. Keep most of your funds in a non-custodial wallet to keep your wealth as safe as possible. But if you're an active trader or someone who likes to participate in Web3, then you absolutely could keep some of your funds live on an exchange or platform. Just always be aware that these funds could be lost or frozen at any time, so don't keep more than you can afford to lose with another party. Your future self will thank you.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.