You know how they say, “When life gives you lemons, make lemonade.” But when it comes to securing your crypto funds on a centralized exchange (CEX), the old adage should be “When life gives you lemons, make lemonade.” When it comes to your custody, be a self-custodial wallet.” Self-custody is undoubtedly a better solution to protect the interests of cryptocurrency customers. Regulation alone is not enough.

The following commentary editorial by Joseph Colement, Bitcoin.com General Counsel.

Don’t get us wrong, regulation is important. It’s like a flimsy umbrella on a sunny day — better than nothing, but you don’t want to rely on it during the rainy season. Just ask the folks at Gemini, despite being the “most regulated” CEX out there, they still managed to lose all the money they “earned” their customers. Talk about “earning” a bad reputation! Ouch.

Crypto regulation is like a fragile umbrella in the monsoon

But let’s be honest, the crypto world is like the wild west. Honestly, the US government is like the sheriff who just arrived in town, trying to figure out this new territory. They’re like dads at a teen party trying to understand what’s going on, but it just ends up getting in their way.

Having worked full-time in the crypto space as a lawyer for 5+ years, I would to say that the problem with CEXs is not regulation (or lack thereof), but the business model itself. When an entity controls a client’s money, they are incentivized to trade and gamble with that money, much like a stockbroker plays blackjack with your retirement savings. Meanwhile, customers are left with bags (or in this case, wallets) when things go bad.

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“Regulated” CEXs also mix services such as trading, custody and market making. Unlike traditional regulated stock exchange platforms, users on many CEXs face off against the exchange itself rather than another client of the exchange during a trade.This enables CEXs to pre-order trades with clients, a well-known practice employed by top exchanges, even in the US

Let’s not forget about hacking. To date, approximately $5 billion in user funds have been stolen in the 3 years, with nearly $3 billion in 2022 alone. But rest assured, the Department of Justice is always here to protect you. They will keep your funds safe with a strong crackdown on well-known cryptocurrency criminal organizations like Bitzlato.

Compliance costs CEXs billions of dollars in lost revenue, and the costs are often passed on to customers. CEXs invest more in legal and compliance than in product development. This month, Coinbase invested $50 million in its compliance department under a settlement with NYDFS, but laid off 20% of its staff. Lawyers are blockers not UX designers. If you blindly follow their advice, you may encounter old-fashioned cookie pop-ups.

Seriously, self-custody is the way to protect your cryptocurrency funds. Honest business practices and non-custodial wallets are key to protecting the interests of investors and customers in the crypto world. Instead of relying solely on regulations, let’s move to a more decentralized model where users have full control over their funds and are not at the mercy of centralized entities. Only in this way can the safety and security of user funds in the encrypted world be truly guaranteed.

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What are your thoughts on self-custody as a solution to securing your cryptocurrency funds? Do you agree that relying solely on regulations is a better option, or do you think there should be a different approach? Share your thoughts in the comments below.

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By Rebecca French

Rebecca French writes books about Technology and smartwatches. Her books have received starred reviews in Technology Shout, Publishers Weekly, Library Journal, and Booklist. She is a New York Times and a USA Today Bestseller...