What Does ‘Not Your Keys, Not Your Crypto’ Mean? Wild Exaggeration or Honest Warning?

You might think that if you can see a number in your crypto balance, then this must mean you own that specific amount of tokens, but what if I told you this isn’t actually the case?

The amount of ownership you hold depends largely on how you manage your keys. This has become a very contentious issue, encapsulated in one popular expression: “Not your keys, not your crypto.” 

Ultimately, this saying is trying to keep investors and their crypto safe and protected, but it’s been thrown around so much recently that it can be easy to lose its meaning. Today, we’ll cover the term and whether it’s simply an exaggeration or a realistic warning. 

Meaning of the Saying 

When people say, ‘Not your keys, not your crypto,’ they are referring to the popular notion that if an investor doesn’t personally own their public and private keys, then they don’t own their crypto assets. 

These keys, specifically the private key, are needed for investors to interact with their crypto and access their funds. However, every investor will need to decide early on in their journey whether to give their keys to a custodian for safekeeping or to handle them personally, with this popular expression advocating for the latter. 

People don’t say this on message boards and social media just to prove themselves right, though. In reality, it feeds into the theme of financial privacy, which should always be a top priority for anyone involved in the crypto ecosystem. 

Origins of the Expression 

Though the exact origin of this popular saying is difficult to pin down, what is clear is that it exploded in popularity following the infamous bankruptcy of FTX in 2022, where thousands of people’s private keys were used maliciously. 

This incident is often cited as one of, if not the most prolific scandal in crypto history, hence why people became so vocal about key security after it occurred. 

The Connection Between ‘Keys’ and ‘Crypto’ 

So far, we’ve covered the relationship between keys and crypto on a surface level, but let’s go a little deeper. 

When a crypto investor signs up for a crypto wallet, which is required to start trading, they’ll be given two keys: one public and one private. The public key acts as an address that people can use to send you crypto, while the private key is needed to execute any transaction. 

However, whether the investor will fully own their private key and, in turn, their funds depends on whether they choose a custodial or non-custodial wallet. As the name implies, a custodial wallet will hand the keys to a custodian or an exchange. The owner of the funds will still be able to transact their own crypto, but the keys will be stored for safekeeping by a third party. 

Alternatively, non-custodial, also known as self-custody wallets, cut out the third party altogether, giving the investor full ownership of their keys and crypto. 

Why Would People Hand Over Key Ownership?

At this point, you may be wondering why people hand over their keys. Isn’t having complete ownership of these tools the best possible option?

The primary reason some investors will choose to store their keys with a custodian is convenience. 

Losing your private key means losing access to all of your crypto funds, so people who don’t feel confident enough to keep it safe in the long term can rely on an exchange to do so instead. Additionally, many exchanges will feature built-in wallets that automatically give the exchange ownership of someone’s keys, allowing them to begin trading on the crypto market immediately. 

Simply put, some investors, especially beginners in the crypto world, will choose to sacrifice some of their key ownership for convenience. While this isn’t inherently a bad decision, the reason so many people have been screaming out the ‘Not your keys, not your crypto’ mantra is that giving away key ownership harbors a fair amount of risks. 

Risks of Not Owning Your Keys 

When people say that you don’t ‘Own’ your crypto if you don’t already own your keys, this can be true physically and in other unique ways. Let’s take a look at the risks that birthed the expression. 

Centralised Exchange Hacks 

Unlike decentralized exchanges, which are difficult to expose, centralized exchanges are more susceptible to cyberattacks because they have a central point that can be targeted. 

Essentially, if the hackers manage to successfully crack into the exchange’s central entity, which holds all users’ private keys, they can use said keys to steal user funds from the platform. 

Remember that many custodial services and exchanges offer users ready-to-go custodial wallets as soon as they sign up. While this is certainly convenient, it also comes with a risk that harkens back to the ‘Not your keys, not your crypto’ expression. 

Key Misuse 

If you hand over your keys to an exchange or custodian, you will be sacrificing a portion of your personal ownership while also granting some level of ownership to the third party. 

This can be risky in and of itself since there’s never any telling what a party might decide to do with these keys in unexpected scenarios. 

A historical example of this can be seen in how President Roosevelt banned the hoarding of gold in 1933 and took sums of it from the people who owned too much to help ease the Great Depression. 

This also occurred between 2011 and 2014 during the Mt. Gox scandal, when more than 647,000 Bitcoins were stolen from people’s wallets as part of a major scam.

Therefore, these unexpected acts would instantly rid many people of their crypto ownership, which could be prevented by holding one’s own keys.

Missing Keys 

Outside of malicious actors, sometimes custodians simply lose a key by accident or due to a technical glitch. Of course, this is a rare occurrence since the person responsible for holding them will know of their value and the need to protect them, but we also need to remember that those working behind the scenes are just as human as me and you. 

Accidents happen, but if you own your keys, you can at least take steps to mitigate the risk of losing them rather than putting all your faith into an exchange. 

Examples of ‘Not Your Keys, Not Your Crypto’ in Action 

Though the saying ‘Not your keys, not your crypto’ has been around for a fair few years now, two major examples of it in practice have spurred on the mantra even more since they occurred. 

Collapse of FTX 

As mentioned previously, FTX was a prolific cryptocurrency exchange, the third most popular before its collapse in 2022. 

In August of that year, it was found that Sam-Bankman Fried, the owner of FTX, had been moving customer funds over to his sister company, Alameda. He was able to achieve this as he was in full control of every user’s private key, but after being caught red-handed, FTX proceeded to plummet.

Things got even worse when, in a fit of panic, Fried blocked withdrawals completely, which again he was able to do since he called the shots being the private key holder. 

Though Fried and his accomplices were eventually arrested, this debacle resulted in the loss of more than $8 billion worth of customer funds, hence why the saying became so popular after this specific incident.

GuadrigaCX Scandal 

A slightly earlier example of the saying coming true, albeit in a different way, was the unexpected fall of GuadrigaCX. 

This was the largest exchange in Canada before it ceased operations in 2019, the reason for which was the owner, Gerald Cotten’s sudden death. Since the exchange was centralized, Cotten held more than 100,000 people’s private keys, equaling approximately $190 million in funds. 

Since there was no precedent for what to do in such a situation, it further highlighted how true the saying ‘Not your keys, not your crypto’ really is, since such unexpected turns can randomly lock people out of their funds overnight. 

Archer vs Coinbase: ‘Not Your Keys, Not Your Crypto’ in Law

The expression has even been the center of a very important legal case within the crypto industry: Archer vs. Coinbase. 

In anticipation of the new Bitcoin Gold blockchain arriving in 2017, Darrel Archer decided to store 350 BTC tokens on the Coinbase exchange in the hopes of eventually exchanging them. 

However, much to his dismay, Coinbase refused to support Bitcoin Gold. Archer’s total funds would have been roughly $159,000 if he had been able to trade, which resulted in him pressing legal charges against Coinbase. 

After a hard-fought battle, Archer ultimately lost the case on all charges, and it all involved his private key. 

Because Archer had willingly given ownership of his keys to Coinbase, it was seen that he didn’t possess the power to access the forked coins due to the decision. 

The judges made this clear when stating that “Investors are aware they are operating in an unregulated market” and that ”There is no requirement that investors keep their coins in exchanges, they can always withdraw the coins to private wallets”. 

Ultimately, the case confirmed what people had been saying for a while: the crypto landscape is very unpredictable, so you’re probably better off taking the option to own your keys since there’s no requirement for you to give them away in case something like this happens. 

Ways to Protect Your Keys and Crypto 

If all of this has got you thinking about how to keep your keys and crypto safe and secure, there are a few wallet types that can provide top-notch security for those who value security above convenience. 

• Hardware Wallets – Cold storage that can store keys offline, making it virtually impossible for hackers to retrieve them.
• Paper Wallets – When keys are printed out as QR codes on paper. Malicious actors can only retrieve them by physically taking the paper. 
• MPC Wallets – Multi-Party Computing wallets where the private key is split into encrypted fractions. 
• Multi-Sig Wallets – Wallets that require multiple signatures to sign off a transaction.

On the Flipside

• Though CEXs always have the looming risk of cyberattacks, many of them have bolstered security to help negate this anxiety for investors.
• For example, Coinbase was hacked in 2021, but when it was, it resolved the issue quickly and paid back all victims in full very shortly after.

Why This Matters

If anything, keys are the most important thing in an investor’s toolset, even more so than the crypto itself, since no trading can occur without the keys.

Therefore, understanding why people advocate for others to protect their keys can help investors understand the importance of retaining full ownership over their digital assets.

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