Unlocking Crypto Security: Why Self-Custody is Your Best Defense Against Losses!

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The Future of Crypto Security: Why True Self-Custody Is Essential – Insights from Andrey Lazutkin, CTO of Tangem

By Andrey Lazutkin, CTO of Tangem

Over the last ten years, cryptocurrency has evolved into a massive financial sector, now valued at trillions of dollars. However, this rapid expansion has brought to light a major issue: the safety and security of user assets. Despite the crypto industry’s pitch of financial independence through self-possession, billions of dollars are still lost annually due to security lapses. The bull market of 2024 saw a surge in crypto-related crimes, a trend that has continued into 2025. Throughout the past year, cybercriminals are believed to have stolen approximately $1.73 billion in digital assets, with a large portion linked to breached private keys, seed phrases, and exchange hacks. These incidents are not isolated cases; they are persistent issues that undermine trust and slow down broader acceptance of cryptocurrency.

As an analyst, I recognize that mastering self-custody solutions effectively is crucial in mitigating the prevalent reasons for cryptocurrency loss – losses stemming from hacked keys due to phishing or malware, misplaced or forgotten seed phrases, and funds being stranded on defunct exchanges. At Tangem, our objective is to tackle this very challenge by developing technology that simplifies, broadens accessibility, and ensures the security of self-custody solutions, thereby making cryptocurrency adoption more straightforward.

Billions Lost: The Cost of Centralized Custody and Human Error

Multiple instances of centralized storage failures have resulted in massive losses for cryptocurrency owners. The most notable instance is the demise of Mt. Gox in 2014, during which approximately 850,000 Bitcoins vanished, equating to more than $50 billion in current value. The bankruptcy of FTX at the end of 2022 has frozen over $8 billion worth of customer deposits, demonstrating that even reputable entities can succumb to misconduct or fraud.

Chainalysis reports that a staggering sum of approximately $3.8 billion was illegally taken from cryptocurrency platforms in 2022. The majority of these funds were drained from centralized services such as exchanges and intermediaries, known as bridges. This amount represents a substantial jump from the $3.3 billion stolen in 2021, suggesting that centralized weak points continue to be the preferred targets for cybercriminals.

However, it’s important to note that exchange failures are not the only issue plaguing the cryptocurrency market. A significant portion of losses stem from users attempting self-custody, often without the necessary tools or comprehension. In 2024 alone, crypto hacks amounted to a staggering $2.3 billion, with 81% of these incidents linked to compromised private keys or poor key management. A survey conducted in 2024-25 revealed that a concerning 59% of those knowledgeable about cryptocurrencies and 40% of actual crypto owners harbor doubts about its security, with many citing mishandling of keys as the cause for losing access to their funds.

The Seed Phrase Is an Illusionary Self-Custody: Crypto’s Weakest Link

In various hardware wallets and personal custody methods, the seed phrase serves as the fundamental aspect for restoration. Essentially, it allows you to recreate your digital wallet if the device gets misplaced or damaged. However, using a seed phrase comes with notable risks.

In simple terms, a seed phrase is like your private key written down in an understandable format. Writing it down or keeping it stored can pose a risk. If the phrase falls into the wrong hands or gets misplaced, anyone can gain access to and empty your cryptocurrency assets without any way of getting them back. Reportedly, approximately half of the over $200 billion worth of lost cryptocurrencies are due to exposure or mishandling of seed phrases, according to data from blockchain investigative firms.

Users who take safety measures still encounter difficulties. For instance, seed phrases printed on paper may get damaged during disasters like fires or floods. On the other hand, those saved digitally could be compromised due to hacking or malware attacks. Memorizing them seems perfect in theory, but for most people it’s unrealistic, especially when managing numerous wallets or intricate passphrases.

In the year 2024, incidents involving the compromise of private keys or seed phrases accounted for approximately 43-44% of all cryptocurrency thefts. This finding was reported by Chainalysis and threat analysts. Phishing attacks specifically caused a staggering $1.05 billion in losses, representing 44.5% of all on-chain thefts, while private key theft added an additional $855 million to the total. Moreover, it’s worth noting that 70% of funds stolen in hacking and exploitation incidents were a result of infrastructure attacks, which primarily involve compromises of private keys or seed phrases.

It’s plain to see: recovery systems using seed phrases for operation security usually require users to maintain a level of protection that can be hard to attain in reality. This challenge is what Tangem has chosen to tackle with their innovative solutions.

Market Trends: Rising Demand for Self-Custody

As an analyst, I’m observing a significant move in the U.S. towards individuals taking control of their own digital assets, often referred to as self-custody. This trend is not just about market dynamics but also mirrors changing regulatory perspectives. The Chair of the U.S. Securities and Exchange Commission, Paul Atkins, recently emphasized this principle, likening self-custody to a fundamental American value.

Atkins asserted that the principle of personal control over one’s private possessions, a cornerstone of American values, should remain intact even when using the internet. He advocates for more freedom in handling cryptocurrency assets by individuals, particularly since intermediaries can impose unnecessary fees or limit participation in staking and other blockchain activities.

It appears that market trends suggest a move towards personal asset management solutions, following the fall of FTX in November 2022. This is evident as sales of hardware wallets have experienced substantial growth worldwide. Notably, leading providers of these wallets reported sales increases ranging from two to three times their original amount during the months post-event. Tangem also noted a surge in demand, mirroring a wider pattern: users are increasingly opting for direct control over their assets.

The transition is backed up by search statistics too. It appears that people have been increasingly searching terms such as “self-managed wallet” and “hardware cryptocurrency wallet” after significant exchange breakdowns or cyber attacks, according to Google Trends data.

The results of a survey conducted by Coinbase in March 2025 indicate a shift in public opinion regarding self-custody solutions. Specifically, the survey found that approximately 56% of U.S. crypto users are now aware of these solutions, compared to a lower percentage in previous years. Additionally, there has been a significant increase in the use of non-custodial wallets since 2023, with a rise of 22%. To add to this trend, researchers from the University of Illinois have reported that self-custody wallets currently hold over 35% of the total crypto supply, compared to just 25% in 2022.

The findings of a survey by Coinbase in March 2025 suggest a change in attitudes towards self-custody solutions among U.S. crypto users. Specifically, the survey showed that approximately 56% of U.S. crypto users are now familiar with these solutions, compared to fewer users in earlier years. Additionally, there has been a notable increase in the use of non-custodial wallets since 2023, with an uptick of 22%. To further underscore this trend, researchers from the University of Illinois have reported that self-custody wallets currently account for over 35% of the total crypto supply, compared to only 25% in 2022.

As a crypto investor, I’ve found myself increasingly drawn towards self-custody wallets. With governments worldwide looking into stricter regulations for custodial services, it seems that self-custody wallets are not just a safer choice but, in certain situations, the sole means to preserve financial independence.

Alternative Approach: Seedless, Hardware-Based Self-Custody

At Tangem, we feel it’s crucial for cryptocurrency safety to be both robust and user-friendly. To achieve this, we’ve developed a cold wallet that does away with the necessity of a seed phrase entirely. This means no seed phrases, no hidden dangers – just straightforward, dependable self-custody.

Tangem’s primary goal is to make self-custody accessible for everyone by offering a straightforward and safe cold storage wallet. Our hardware wallets create private keys securely within an EAL6+ certified chip, a standard that is among the highest in terms of security for smart cards and banking industries.

In Tangem’s setup, the private key is securely kept hidden at all times and is never revealed. This eliminates the need for a seed phrase that could potentially be stolen, lost, or mishandled. Instead, Tangem offers three different devices (cards or rings) as storage options for the same private key, which are synchronised with the same wallet. These devices serve as access tools, enabling users to gain access to their wallet without relying on a written or digital seed phrase.

With this method, users reap several benefits. Initially, it eradicates potential seed phrase risks as no sensitive information needs to be saved that could potentially get lost or compromised. Subsequently, it simplifies and streamlines the sign-up process and user experience for customers. In case of a need to recover an account, a backup card is utilized, making it straightforward even for those who are not tech-savvy. The seedless backup system devised by Tangem guarantees that your assets remain truly self-custodied and entirely owned by the user, as the product design itself prevents the sharing of private keys. As the saying goes, “If you want to keep a secret, you must also hide it from yourself.

Using commonly used items such as cards and rings, these Tangem wallets blend effortlessly into our daily routines. They can interact easily with a simple phone tap, don’t need batteries, and are resilient against water, dirt, and physical harm.

Moving forward, we’ll keep pushing the boundaries with innovation. Soon, Tangem Pay users will be able to utilize cryptocurrencies for purchases at numerous retailers by using a Visa card, retaining complete management over their assets.

Conclusion: Enabling Adoption Through Self-Custody and Security

To ensure widespread acceptance of cryptocurrencies, security measures need to strike a balance between strength and user-friendliness. Security mechanisms should be simple enough for everyone to understand and use. For years, complexity has been a significant obstacle; handling a cold wallet can seem as daunting as maneuvering through a minefield, leading most people to opt for the simplest route – relying on custodians instead.

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2025-06-27 19:23