When you buy cryptocurrency, you need to decide where you want to store your crypto. You can choose to take ‘self-custody’ of your crypto or you can use a storage service offered by crypto exchanges or brokers.
As an analogy, think about how you currently hold your fiat money – in cash, in a bank account, in a brokerage account, or somewhere else. If you lose money from your wallet, you have no recourse.
Similarly, the risk in taking self-custody of your crypto is if you lose your crypto, there is no recourse. The benefit of self-custody is the peace of mind that some people may have knowing that protection of their crypto wealth is not entrusted to some other entity.
Some investment tools and products require that your crypto is stored in a particular account. For example, when you buy crypto through UNest, your holdings will automatically be stored in an account managed by our partner, Apex Crypto. By storing crypto in this way, parents can buy crypto with the knowledge that their holdings are safeguarded and available to their child when they turn 18.
Though unlikely, it is possible to lose funds stored on a crypto exchange or with a crypto broker. In the event that funds are stolen in a hack, your crypto is not insured by the Federal Depository Insurance Corporation (FDIC). Many American citizens are used to operating with the knowledge that the money the deposit in a checking account is FDIC insured. Remember, crypto exists outside the traditional financial system, which means you are not guaranteed repayment of lost funds.