Topic: The benefits of self-custody outweigh the risk of exchanges (Read 453 times)

To start with, people should always be aware of their responsibility in life: be it BTC or anything else. Nobody cares about you really  You have only yourself. As for the recent case with FTX, it’s only proved how early we are. We are on the stage of learning from our mistakes and trying to prevent such cases in future.

How can you have 181 million USD in one single wallet? This is really bad decision making and if everything is really lost than there is nobody to blame than himself. Already with a few thousand USD in cryptos I would recommend to split it between multiple wallets. It's going to reduce the risk of losing it considerably and it makes it much harder for thieves or scammer to get their hands on all your coins. Also having backups can  save us. In general though I agree with you that we should store our own coins don't leave them at an exchange. The security risks of an exchange is too big for long periods of time. I would rather lose my money based on my own fault than having someone else steal it from me. If I can't have my own coins than nobody else should have them.

I save more Bitcoin than i spend fiat, so more Bitcoin. Leave nothing in my bank and spend Bitcoin or cash when i can. I cant force everyone to accept Bitcoin or to pay me in Bitcoin when they don’t want to. It’s clear what im supporting, not just by the way i handle my money. Yet what im supporting and my individual actions will be meaningless, if not much more people opt out too. So it’s not just about me and even if i get more extreme about not touching fiat, it won’t make any difference currently. It’s a collective decision that determines which path we’re choosing in the end, i made my individual decision and am doing my part to make it possible. If this fails then atleast i have the peace of mind knowing that nothing could’ve worked to fix this mess or to change something, because it’s people itself that refuse to fix it and that the current system was just a better reflection of the true nature of humanity.

For once your contribution was actually helpful, thanks. If a fiat mindset like youre describing is actually widespread out there, it would explain a lot of behaviour and makes a lot of sense. If someone is honest about it, i respect it more than someone acting like they want to have rational arguments when in reality they just want to pump their bags quickly and the how + truth doesn’t matter. To me fiat is a worthless piece of trash and a scam, that i cant wait to get rid of. And im willing to go till jail if i can help to make this ponzi fall, so our perspectives might differ. Couldn’t care less if im making profits, yet im making them. But i care about the world being run by incompetent weak soft feudalists that lost their soul trough greed, control fetishes, god complexes and pleasure addictions, which is more important than a desire for material things and comfort. Discipline is strength, greed is weakness.

No it is a pain in the ass.

It slows down trading time, it loses profit in transaction fees, it requires a security mentality to be active at all times.

The decentralization mantra, and idiot hodl mentality is only for btc cult idiots that never earn fiat.
Because to earn fiat you have to sell/trade coins for fiat.

While you covet your btc precious in your basement,
others will be using their fiat profits to pay bills, buy cars and houses, and improve their family's lifestyle.  
And to do that they need exchanges.

Why are they so resistant to it? I really dont get it. Its scary and uncomfortable at first, but you can just store a few bucks at first and then get used to it fast. Its a superior experience in the end, to have all the benefits of a decentralized asset.

These cases didnt use seedphrases. And what makes it impossible for people to develop the discipline and knowledge to use a wallet software and to store 12 to 24 words safely? I seriously wanna know how this barrier is too high, if we know the consequences of not doing this.

While the idiot tadamichi wants to pretend every person has the technical expertise and self discipline to secure their crypto.
The following shows , it should be a personal decision as risks vary per individual.
Until crypto exchanges are forced to insured a fiat value of their account holding.


Self Custody failures below.
https://www.jumpstartmag.com/top-3-stories-of-lost-bitcoin-fortunes/





FYI:
The other elephant in the room,
the price of btc can crash in minutes verses fiat at anytime,
which is why being able to trade out faster to fiat could save you millions.
Which is why some prefer exchanges over home wallets, faster trading time.
What good is owing btc, when it loses 80% of it's fiat value and you were unable to trade out.  

https://medium.com/the-capital/this-bitcoin-family-had-the-perfect-exit-strategy-but-are-now-moving-back-into-the-market-bfa571c78b4c
That $1 million of fiat value, their # of bitcoins has not changed.
So much for self custody. 

I have.  Or at the very least, Newbies who are willing to learn self custody until they find out there is an easy way out, which is Exchanges and Custodial Wallets.  It is very hard to make someone move from the comfort of Banking to storing Bitcoin at their own risk.

-
Regards,
PrivacyG

I won't deny that it's a valid point. I mean in some cases this can be really something that can happen without you even doing anything wrong. Like for an example if your house catches a fire or ends in a natural calamity while your seed phrase was inside. Some would say that you should keep it in an alternative place outside your home also but honestly think of it what could be a safer place than home? Also keeping it with you 24 x 7 isn't also a very good option and learning it and forgetting it is pretty common as well. So obviously this risk is there but it doesn't outweigh the risk of exchange for sure. This is something that you are doing and is very much legible, not some foolish person playing with your money by not keeping enough backing for your assets.

Its probably a case of people underestimating their ability to keep 12-24 words safe and overestimating the security of their assets being in the hands of other people hiding behind opaque institutions. It doesnt appeal to everyone, but we should communicate clearly that it can be learned relatively easily by anyone, that none of the properties of Bitcoin apply to coins held on an exchange and what the consequences are of doing so. A newbie will thank you for holding them accountable if it saved them from being rekt. If i was a newbie i would be thankful if people annoyed me till i get the warning and then start to self-custody, instead of keeping a false sense of security and then getting rekt. Self-custody is the only way for Bitcoin to be different from the current system. A world with most Bitcoin held on exchanges wouldnt be so different from fiat. With encouragement, support and being annoying enough a lot is possible. I have never met a newbie yet that was unwilling or unable to self-custody with the right support around him or that lost anything while doing it.

A person shouldnt put their life savings into something they dont understand the basics of. Bank custody doesnt change that or makes this practice magically safe. Its the opposite, if theyre handing over their life savings to someone else and dont understand the thing its invested in, is even a worse idea. History proves this.

You can greatly reduce the said risk of self-custody by dublicating the copy of your Bitcoin secret keys that's probably inscribed on corrosion-proof metallic objects and hide them in multiple places, preferably buried underground.
 Not good idea to store your secret keys in one place especially if the Bitcoin is very valuable to you.

"5 dollar wrench attack"

A pillar point to self custody is "don't talk about fight club". I'm not talking about anything illegal, just people can't take what they don't even know is there. Don't tell anyone, ever. If people know then leave some on the one you want them find / know about (decoy).

I used to have money, everybody well always trying to gain access to it, giant target..

I am usually extremely paranoid yet I sometimes blind trust software stuff myself.  It is truly exhaustive having to deal with ALL kinds of verifications needed to know whether a software is truly legitimate and safe or not.  Even if the software is Open Source and trusted by the Bitcointalk community, there is always a chance ONE single line of code turns it into something very malicious you should not trust.  If you want it all to be 100.00% safe, you need to verify everything, including the source code.  You have to build all software by yourself rather than installing DEB and EXE's.

On the other hand, you have Exchanges supposedly storing Cryptocurrency holdings safely.  Then you find out there are people like CZ who are running their whole Cryptocurrency stuff off an USB stick.  Even as a multi billion dollar company, the security may be more or less the same one you get by individually storing your own coins.  That is, unless the company hires security experts and properly stores Bitcoin in a neat, close to perfect way.  How many do this however?

The level of your Wallet's security depends on a lot of factors.  It is very relative.  And let us be sincere, none of us have the perfect, flawless way to store and use Bitcoin.  Even the extremely paranoid ones still have flaws in their behaviors.  But what makes an Exchange much, much riskier than self custody is particularly that you do not know how their (your) coins are stored.  They may be stored by security experts.  But chances are they are not.  So why risk it then, if you have the choice to store them and meet your expected and wanted level of security?

-
Regards,
PrivacyG

The title has some merit to it if you actually think about it. Just imagine, that these companies are employing terrible security, yet they're hosting millions of pounds worth of Bitcoin, and sometimes more. Yet, we expect the average user to have good security, when we know that people are generally quite lazy.

How many users are verifying the signature of their wallet, how many are checking the software they're using. I bet they see it as open source, and just blindly trust it. Then, you've got people hosting their wallets on compromised machines or just poorly implemented security like weak passwords or sharing their credentials with people they trust.

I've said this before, but I don't think being responsible for your own security actually appeals to everyone, and that's fine. Hence, why banks will likely always be used. Since, if you are someone that doesn't know anything about computers or security, trying to secure your life savings on a computer probably isn't the best idea.

Keeping bitcoins in your Wallet actually gives you the complete access along with responsibility, in the example you mentioned the chances of finding the lost hard drive is less and probably zero in my opinion but the point is you will have a chance but if you gave the responsibility to someone then you can't really do anything about it.

it will work fine if done the right way. Indeed, there will be no method that is 100% safe because everything has its own risks.
Currently, some centralized exchanges even update their ToS (Term of Service) with new rules that favor them (exchanges) rather than customers so that centralized exchanges will be safe from customer lawsuits.

Therefore, as you said, limiting the entry of money into a centralized exchange must be limited, because the risk of loss will still occur. and storing in a personal wallet that has full control would be recommended, but remember security is in your own hands, back up your wallet and store it in a safe place so you don't lose access.

For me, no method is 100% safe, everything has risks but choose less risky options and we should control our own assets, not give it to anyone or any third party. But decommissioning centralized exchanges is not possible and it will be part of our investment journey, our job is to limit leaving too much money on it and always withdraw all assets to our personal wallet after the transaction is complete.

You don’t understand it fool. CEXs aren’t the entire market. They’re not necessary for an asset to find a price. They would make this process more efficient if used right, but in the current environment they just distort the prices by their own actions. Even if 100% of people self-custodied, trading would still go on. Trading goes on outside of exchanges too and there are exchanges that don’t hold any funds themselves and allow their users to do it themselves. Even if  Bitcoin is used directly there can still be a fiat value attached to it, by the fiat value of the good. Which one of your idols told you that your asset won’t have value if scammers don’t run websites where they take your assets and distort the prices and supply? Self-custody is the point of any decentralized asset (there’s just one currently), without self-custody all the properties of that asset are lost.

If you think a broken vehicle is safe/ gets you to your destination forever, because it’s insured - good luck.

You just won’t get it.

Good luck with diversifying into the same scam. Also i dont live in a banana republic where people starve based on how their investments perform or a place where they put themselves into that situation. Maybe that’s why your mentality will always stay a fiat sheep that worships big centralized entities, because you think you have no other choice to survive. Wake up.

The chances of James getting his hard drive back are slim because it's covered in tonnes of rubbish, if it's even there. There's a possibility that it was found by some drunkard and sold for scrap long time ago.
I wouldn't call his case a self-custody problem because he didn't care about that drive. He thought bitcoins weren't worth much so he didn't spend any time and money to secure them. Self custody implies that you want to keep the thing safe.


Some people never learn. Novogratz put money in Luna, Luna happened to be a scam and he lost it all, so he put coins on FTX and held them there, lost again. I bet you next time he buys coins he's going to hold them on some centralized platform.

I think that your title contradicts your forum thread. Saying that self-custody risks "outweights" the crypto exchanges risk means that having crypto in your own cold wallets is riskier than leaving them in a crypto exchange. Is that what you are trying to say?
I think that having coins in a cold wallet is way less risky, if you know what you are doing and you have enough backups.
Putting your life savings and your trust into a centralized crypto company is a recipe for disaster. It doesn't matter how trustworthy the crypto company claims to be.
I don't know anything about James Howells and his 11 million USD plan. Spending 11 million just to find a hard drive that might be damaged and cannot be recovered seems like a very risky idea. Who is going to "invest" 11 million dollars into such plan?

I agree and I believe most of the stories about losing Bitcoins in wallets and login details are mostly from the days when BTC wasn't taken that seriously because it had less monetary value then but I strongly believe that this might not be the case with anyone hodling their Bitcoin in any form of Hard Wallet now as we all understand how important that is and storing your BTC in hardware wallet while keeping your PKs is still the best. 

If you aren't careful with your self-custody wallet, you will lose access to your Bitcoins forever. It's better to have more than one offline backup source in storing your private keys, seed phrases, etc., rather than sticking to one only. If possible, try to buy some metal bars that would let you engrave your details which are fire and water resistant.

Treat it like it's worth millions in value in which you'll do whatever it takes to secure them at all costs even in various situations like typhoon, fire in the house, etc.

It is thanks to heroes like James Howells and other poor fellows who lost their bitcoins that we understand the importance of our own responsibility to store our seed phrases. These stories thundered around the world, and I am sure that after them, anyone who knew about this and has even a small amount of bitcoins learned how to properly store and not be careless about passwords and everything else that can be valuable.
Trusting your assets to the exchange is tantamount to trusting any person who can die at any moment to betray, in short, unpredictable in their actions. Understanding who and how much will be to blame for the loss is much easier when you yourself are responsible than shifting your blame to others.

But you like to pretend like you have half a brain, and try anyway.  



More like Dummy Alert, each bank in the US is required by law to have FDIC insurance,

meaning even if the bank goes belly up, you still received your funds up to a specified $ amount, currently $250000 per account per bank.
Credit Unions are under The National Credit Union Administration (NCUA) which also insures $250000 per account per credit union.
Only people storing over that amount per account in a single bank would lose anything.
Stock trading Companies in the US are part of Securities Investor Protection Corporation (“SIPC”),
which protects securities customers of its members up to $500000 (including $250000 for claims for cash).

Just because you live in a Banana republic , other people live in countries with laws and regulations.
If Crypto exchanges were required to insure their accounts up to $100000 , then alot of the exchange concerns would disappear for the majority,
and anyone over that amount store at other exchanges or at home.

FYI:
Once the US / Canada / Europe all ban Proof of Waste coins, you'll wish you had diversify.
When all of your wealth shoots up in 1 shot, it can also fall down twice as fast, diversity makes sure you don't starve when it does.  

Would you rather prefer someone or some organisation to be in charge of your coin or money?
I guess not, I wouldn't do that. In most scenarios, third parties are not usually of the best interest to be in control or management of that which isn't there's. Most especially, when they've got nothing to get from it.

That's what I like having your coins stored away on an exchange when you've got a wallet that puts you at liberty to decide safety and the fate of your coin at any point.

Exchanges might have there advantages at giving the leverage to trade them but, it comes at greater risks. What might be best is that, you go about it with the what you can afford to lose and at other times, just deposit and withdraw.
Your better in charge than any third party.

To me it sounds like the opposite. The exchange and its owner legally owe money to users, and there's some chance that the users will get at least some portion of their money if the government will manage to seize anything. But with self-custody if you lost your keys, it's not likely you'll see them again.

But typically in both cases the worst case is losing your coins forever, and it seems to also be the most common outcome when something go wrong.

Self-custody is better than custodians because when it's done right, the chances of losing your coins are significantly lower. And it's not rocket science, people need to just use their brains and create multiple backups, instead of writing down the seed, putting it in a cabinet, then accidentally throwing it away with garbage during cleaning.

Yes this is what I was going to say as I was reading down the thread. At this stage in Bitcoin's
life and it's FIAT value there is no chance you would be discarding any hardware. So self
custody is always #1.

There are those out there who would be reluctant to spend $100 on a hardware Waller but
willing to risk their coins by handing over control to exchanges.

These people should look into using tamper-evident bags. Makes it obvious asap if someone tried to touch them, and they will know exactly if their security has been breached or not.

Thats why ideally, you should have a backup in more than one location when possible. Also you can use materials that gives you a higher chance of surviving a fire.

There are hardware wallets that will reset to factory settings after a few failed pin code attempts. Also you can set them so, that the passphrase(if used) needs to be typed in manually after each unlock. Which makes theft pointless. By that time you will have enough time to move your coins to a new wallet that is safe.

Multiple locations.

Youre not storing anything on that exchange. Youre giving ownership over the coins to that exchange and they owe you the same amount back. This doesnt mean your coins are just sitting there and being kept safe for you. Theyre not your coins anymore. They can now do what they want with it. Theyre not letting them sit still. They give out more fake paper coins than they actually have in their reserves. Manipulating the prices and the supply on that exchange. Theres no way to verify the balance sheet of a company for any of us and not even proof of reserves will change that. And when they go bankrupt trough this scam, youll have to fight to get anything back. Leaving you with nothing.

Coins on an exchange are not yours, your transactions can be censored, your wealth can be confiscated, you wont have any privacy and everything is archived, the supply gets inflated, the price manipulated and the reserves looted and forged. This is the complete opposite of what Bitcoin was invented for. Its was made to prevent these things.

And the only way to prevent this is trough self-custody. There is no way around it. Theres not a single situation where exchange custody benefits you more and is safer than self-custody, when you take the other aspects into account. It is not hard or complicated to keep backups of 12-24 words safe. Write down potential threats and find a security model that works. Theres no reason or justification to voluntarily give custodians this kind of power. It is literally against your own interest. Self-custody is the only way to protect your own interest/ rights and helps your investment succeed.

You dont try to drive a car trough the ocean and then wonder why you get rekt and it doesnt work anymore. And in the same way it makes zero sense to try to use Bitcoin in an custodial way. Learn how to self-custody safely(easy) and you will be fine and Bitcoin will be fine.

Bitcoin can be used as a unit of account without a problem. Also markets always exist, no matter if scam exchanges go bankrupt or not. P2P and adoption are more important, but then again youre a shitcoiner that doesnt understand money. Its pointless discussing with you.

Spoiler alert, money in a bank isnt safe regardless of current regulation. Diversifying into different kinds of the same trash is also not really safe.

Each with its disadvantages but one definitely outweighs the other, when you have your bitcoin on an exchange, is just like putting all your eggs on a plain surface knowing fully that it is not safe to keep them there but if you provide a crate for them, they will stand firmly, even if something that tends to shake them, they wouldn't break nor move. That is one of the ways centralized custody differs from self-custody.

I don't think there is much risk associated with self-custody if you do your things with due diligence, the case of that guy not finding his hard drive was a bit of negligence, he didn't do proper backup nor inscribe his passphrase on a metal piece or safe place, it would have been easier to gain access to his bitcoin, self custody is the future of bitcoin and I love how everyone has woke up to the reality of not your keys, not your coins.

Actually it depends,

1. Are you technically literate.
    * So you know how to sync data, & secure your device from hackers. *
  
2. Do you backup your data offsite.
    * Do you backup your data using encryption.*
    * Do you take that data offsite. *

3. How many coins , are you trading.
   * Multiple blockchains require multiple sync times.*

4. Taking time to send coins to the exchanges, could cost the traders extra time and money.
    * Fast trading times can sometimes make the difference, between earning a profit or a loss.

5. Faster conversion to fiat if needed.


Yes, if an exchange crashes you were better off storing at home,
but if your House caught fire , or your device stolen, or earthquake or floods,
then you would have been better off storing on an exchange.

So while there are advantages & disadvantages to both,
the user needs to decide which concerns are more important to them and their own desires.

Their is no one decision that fits every user.
So while self custody might be suitable for some, thinking everyone feels the same is naive.

 

FYI:
One little thing , if every single person pulled all coins off the exchanges,
all exchanges immediately become insolvent,  
then the Trading Volume collapses and all of your coin value collapses without constant fiat exchange.
No fiat exchange, and your crypto coins become pet rocks, that no one wants.  
*No Crypto Markets , No Fiat Value.*
Be careful what you wish for.

FYI2:
A more prudent thought for many , might be to use multiple exchanges or keep crypto as a % of one wealth, not as the entirely of one's wealth.
IE: Don't keep all of your eggs in one basket.

* Until Crypto exchanges are forced to enact their own version of FDIC, which insures a value is available for withdrawal even after an exchange collapse,
then you are in the wild west of crypto, just the same as banking was before the FDIC was enacted for banks.*
FDIC: The FDIC is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks

Risk is our own responsibility because we have to be able to control it even if we keep it in an exchange or non-custodial wallet if the risk of own custody is not paid attention to then we will likely lose it too but the hardest thing in my opinion is to keep it on the exchange even if we keep it assets there our control of the coin will have problems and this is happening on the FTX exchange, which we have a large value but in reality it is zero because of the effects of the exchange controlling it.

So don't be careless like James Howells even though he keeps looking for lost bitcoins in the hard drive it won't be found no matter how small the loss, try if we store 12 or 24 word seeds safely in a better place we won't suffer with it.

Avoid exchange storage, and we should be able to keep private keys safe.

Yeah self custody could come with is own risk like Demantia and probably the death of the person could lead to the loss of it entirely. But this are natural risk associated with life even outside cryptocurrency.


But not withstanding nothing beats you been held responsible for your own failure except maybe lazy people that love to put their responsibilities on others.

My advice to people that have large funds on wallets should just drop hint of its location(where the seed phrase or hardware wallets is hidden) either on their will or Safe in the banks. This although comes with its own risk but could minimise it

Currently it is not safe to store anything in an exchange wallet. We got the proof. Exchange accounts like FTX have been hacked and a lot of money has been stolen from them. We can use hardware wallet, trust wallet, Trezor wallet, Ledger wallet etc as our secure wallet. They are fairly safe. And if you keep the key here very safe then your wallet will be more security complete and safe.

its not very hard to hide the 12 words. i can pick up the most uninteresting 2002 salesmanship book in my shelf and just write the few words in the 10th page and another on the page 20.  the worrisome is how can someone in my family knows its there.

i couldn't really blame some people find it easy to trust exchanges. but sure self custody is much safer, its what many have learned in the forum as a culture in crypto.

All of us need to weigh just how much liquidity we need for our coins.

This will vary quite a bit.

I have multiple wallets and multiple exchanges for multiple reasons.

I am subject to USA law.

This means paying taxes and reporting things to the government.

But it also means FDIC insurance for cash $usd in banks and in coinbase.

SO if I want liquidity and use coinbase I can keep up to $250,000.00 USA cash and it is insured by the Feds.

but if I have 1 btc and coinbase fails tough luck.

Yes I can put a coin in coinbase and convert to usd and the wealth is now safe.

But if I use USD to buy on coinbase I now have a coin that is not safe. So I can pull it off the exchange to a wallet.

Does all of the above sound convoluted and confusing?  Fuck yeah and it is convoluted and confusing.

One simple example I mine say Doge on a pool.  When it is 1000 doge I move it to coinbase. it was not safe on the pool. it was not safe in coinbase .  I make it safe and change it to cash say 85 usd. I decide I want to do a monthly dca to btc for 200 a month. So I buy 200 btc a month from those sales. I then secure the btc in my own wallet

I do this 1 time a week. I create 52 entries when I move the coins to coinbase. I create 52 entries when i turn them to cash. I create 12 entries buying the monthly btc and I create 12 entries when I move the btc to a safe wallet.

AT the end of the year. 85 x 52 = 4420 gross income from doge mining which ends up as 2400 in btc and 2020 in cash  will mean 52+52+12+12 = 128 entries on tax forms.

or just mine and keep all the coins on the pool till late december. then move to coinbase buy some btc and hold the cash which is 4 entries on the tax form.

Really long and complicated example but it is why people let shit sit on an exchange they do not want to do all of the above to keep a mere 4 or 5 grand safe.

you are not going solo
things like key seeds means you literally just have to make a few copies of 12 words

The real truth is that there are very few methods that are 100% safe. Both methods have their pros and cons. It all comes down to risk. The risk of self-custody is that you are going solo. You are the only person capable of protecting your money and coins from being lost or stolen, and that could be a daunting task. But at the same time, if you manage them correctly, it can also be quite secure. In the end, it will be up to you to weigh the pros and cons of each method and see which one looks like a better fit for your needs. But whatever you do, don't trust any third-party service too much. So, to reiterate: keep your coins out of online services as much as possible.

The risk of exchange is higher than that of private custody because with an exchange you are not in control of your coins and not only the exchange but even hackers also have access to your coins on an exchange. But if you have your assets stored on a cold wallet without it being connected until you need it only you will have access to your assets, as long as you have the private security keys to the wallet you can have it stored on multiple forms.

Such could happen as a result of privacy negligence; downloading untrusted programs, visiting unsecured sites and apps etc. And the outcome won't be extremely bad like a collapsed exchange. It's a number game and the lesser the affected people the better. Exchanges have a wide variety of loopholes from third parties like staffs who have access to secret files that can lead hackers to the exchange. Ideally, it's just one address that store the whole money deposited by millions of people. Unlike the self custody that the virus will have to work on one victim per time. Unless, it permeates a viral software used by multiple people.

Nobody said that self custody was 100% risk free, but sometimes it is better to put your fate of safety in your hands than depend on someone that you will be unable to know exactly when they have been compromised. James Howells is one of the very many cases of carelessness, but it is also a reminder that it is also a possibility and something that can happen to anyone. As we are all considering self custody this sort of reminders that come through stories that loss is still possible is very important to make us aware that there are still risks involved.

many people are parnoid. and fear their own family getting acess to keys. so they dont just have 1000 copies of keys dotted around the house just in case..

yet then stupidly think its safer to put funds into a custodian where then the user himself does not even have a key to guarantee he can get out his deposit

i completely understand for 100 years people have trusted custodians(fiat banks) and in recent decades had the trust that their deposits are insured by governments even if custodians went bankrupt..

but the cryptosphere of crypto custodians dont operate the same way and dont have the same regulations(the consume protection part) or even a insurance policy

this is where education needs to come in
teaching people not the "get rich quick" but "if you invest, secure your investment into YOUR control.. because its YOUR property YOUR responsibility. if you hand it to someone else its no longer yours"

The subject of this thread is that self-custody risks outweigh the risk of exchanges, and they you seem to provide an argument in direct contrast with that subject line.  Anyway, there are definitely risks to self-custody, but stupidity isn't one you should be too worried about, unless you're an idiot that might throw away your private keys, in which case it might be better to store them on exchanges.  I think a bigger risk is the $5 wrench attack or having your computer infected with some sort of virus.  This is why people give ways to secure BTC without needing to be connected online and you should take measures to make sure a wrench won't be able to expose your private keys (not having direct access to them is a win).

His mistake was that he didn't have the priv keys written somewhere.

AFAIK he wasn't expecting BTC to actually become big so he just didn't mind the coins he got until its too late. Now he wants to overhaul a mountain of garbage. Today its widely advised even altcoins holders keep their private keys saved not just on a txt file but written on a piece of paper to minimize the risk even if they lose thier hard wallet, computer crash, or phone loss.

I don't think the chances are that high but this is one person and only one copy. Self custody allows you to make multiple secure copies/backups of your wallet which can make it a lot harder to lose.

If an exchange doesn't have enough copies (such as due to problems with trust) then you've only got that to fail before your coins are gone.

You may have heard of James Howells and his $11 million plan to find a hard drive with $181 million in Bitcoin. That is a risk of self-custody, but his chance of finding his bitcoin is actually good.

If you had bitcoin held on FTX, there is no amount of money or time that will bring those coins back. They are gone. You have a 0% chance of finding those bitcoin.

Even in the worst case scenario, self-custody is better than an exchange.

Not your keys, not your bitcoin.

Edit:

I originally had the title worded wrong. I meant the risks of self-custody are worth taking over the risk of exchanges.