Changpeng “CZ” Zhao, CEO of Binance, has issued a warning to the cryptocurrency community on self-custody, claiming that 99% of those who choose to do so will probably lose their cryptocurrency somehow.
Self-custody Risk
For years, CZ has advocated for self-custody, describing it as a “basic human right,” but has consistently urged users to “do it well.” In February 2020, he released a “CZ’s Tips” article about self-storing cryptocurrency.
The CEO of Binance reiterated his advice to use self-custody wallets with caution on December 14 at a Twitter Spaces sponsored by the company. He claimed that security keys are frequently not encrypted, backed up, or maintained securely.
“For most people, for 99% of people today, asking them to hold crypto on their own, they will end up losing it.”
CZ reiterated that holding crypto in one’s own wallet is “not risk-free” and postulated that “more people lose money holding their own — lose more crypto when they’re holding on their own than on a centralized exchange.”
“Most people are not able to back up their security keys; they will lose the device. They will not have the proper encryption for their backup; they will write it on a piece of paper, someone else will see it, and they will steal those funds,” he explained.
Binance’s Custodian SOP
Even when self-custody assets are correctly maintained, the Binance executive claimed that “if a person goes away, they don’t have a method to give to their next of kin,” whereas custodians like Binance can develop a “standard operating procedure” to address that issue.
The Binance executive came to the conclusion that “various solutions have different risk profiles” and that it is up to the user to choose what is best for them. Despite the fact that the majority of Binance’s operations are “centralized,” CZ reiterated that the company is “neutral” with regard to whether it prefers custody or self-custody solutions.
On November 14, CZ had said in a Twitter Space discussion that he’d be happy to shut down the centralized cryptocurrency exchange if users switched to decentralized alternatives.
Binance Proof of Reserves
The timing of Binance’s most recent Twitter Spaces event coincides with a challenging period for the exchange, which has suffered huge withdrawals due to worries about its balance sheet and pending lawsuits.
The Wall Street Journal reported on December 11 that Binance’s proof-of-reserves audit had a number of warning signs, and Reuters reported on December 13 that the U.S. Department of Justice is reaching the conclusion of a three-year investigation into Binance and may bring legal action.
According to data from the blockchain intelligence platform Glassnode, a significant amount of stablecoins have been recently withdrawn from the trading platform. This includes $2.2 billion in outflows of the stablecoins Binance USD (BUSD), Tether (USDT), and USD Coin (USDC) over a 24-hour period between December 13 and 14.
In the most recent Twitter Space conversation, CZ blamed the disastrous collapse of FTX for the depressed market mood, particularly with regard to custodial solutions.
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