Seed phrase issues

I Dislike the Custodial/Non-Custodial Wallet Terminology

Something to think about. When reduced to its core concepts, what are the essential aspects of digital ownership?

I intuitively assumed (perhaps too literally) and was sharply corrected on Reddit, that custodial wallets were those where we were the custodians of the private keys or seed phrase, and non-custodial wallets were those where the keys were held for you.

Incorrect! The official definitions of wallet types are:

Custodial: Custodian holds the keys for you. Usually a centralized exchange.

Non-Custodial: You hold the keys.

Perhaps I'm still salty about being insulted (for the nth time) on Reddit, but I feel the definition implies that retail users are not capable of being custodians. Do you agree?

Arweave dev @samecwilliams sums up where we're at on this topic.

Seed phrase Arweave dev

Emphasis on the 'should be possible.' The analogy doesn't really hold. Web2 account details can be recovered or reset. This is not the case for web3 non-custodial wallets; lose your seed phrase and you permanently lose access to your funds, this is one of the reasons the BTC supply is even smaller than it appears. So maybe the solution is multi-signature wallets? Who would you trust as counterparties?

FTX's insolvency has caused a mad rush of hardware wallet purchases. People are finally getting the message. Not your keys, not your crypto; you've heard this before. For true adoption, any crypto native is aware that this type of self-custody is too risky, it's way too easy to lose access to your wallets and too fiddly for most people to bother with. True adoption will occur the most seamlessly when people are unaware they are using crypto and web3 products.

There are companies like Copper, who distribute seed phrases among different entities to spread the risk of for example a centralized exchange's databases becoming compromised. But this solution is tailored toward institutions, companies, and long-term investors.

Perhaps you are thinking of decentralized identities or DIDs, such as Jack Dorsey's web5 ambitions. Even if we all operated under digital pseudonyms, this would likely lead to a new paradigm of identity theft. If you could fake someone's DID, by accessing their retinal scan, fingerprint, or DNA, their entire financial spectrum would be compromised. This would likely still require mediation from an institutional third party.

Self-custody and financial freedom are the main reasons this space was created. A true retail-friendly solution has yet to be conceived. I think the definitions are too heavily ingrained to be changed, but perhaps we need to rethink private key custody. Reducing the fundamental meaning of digital ownership to its core concepts may enable us to avoid this terminology altogether.



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Postgraduate degree in science. Crypto, Defi and NFT enthusiast. Proficient in data analysis and summarising complex topics.

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Things to think about. Starting a discussion on crypto and web3 topics.

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