In
an increasingly digital world, security is a high-stakes game. The
identities of customers along with their privacy and financial
information are all in the hands of centralized security systems. We are
reliant on these systems, and even though security plays a critical
role in our lives, we rarely stop to think about the consequences of
these systems failing us. Yet those who trade financial assets like
cryptocurrencies think about these consequences all the time.


Why?
The risk of violations of our financial sovereignty coupled with the
potential of theft without an option to recover are two big reasons why
crypto traders realize security is of paramount importance. Thus, the
blockchain and cryptocurrency industries are always looking for better
ways to secure assets.


One way cryptocurrencies and
exchanges can do this is by incorporating more noncustodial technology
into their platforms, thus making transactions and accounts
exponentially safer while simultaneously putting control back into the
hands of the users. This is a concept that has the potential to drive
the industry forward and result in the best-case scenario for security.
Custodial wallets often hold millions of dollars worth of assets on
behalf of their customers. The benefit of having full control over your
funds is the difference between your account being frozen when you want
to make a transaction and being able to freely trade at your own
discretion. The key is that the customer is in control.


Where noncustodial tech fits in blockchain’s vision of decentralization



Perhaps
one of the greatest and most obvious benefits of noncustodial
technology is that it essentially eliminates the need for a trusted
intermediary. For example, noncustodial wallets work by giving the user a
private key that allows them to have full control over their funds when
transferring, trading or making purchases.


As a result,
noncustodial exchanges are more secure because individually secured
accounts are much more difficult, costly and time-consuming to hack than
a single centralized account. Having the responsibility of securing
your own assets is often criticized as having a negative impact on user
experience, but learning the intricacies of noncustodial technology
engages users in new ways and enables them to make better-informed
decisions.


The freedom and independence ensured by
noncustodial technology strike at the heart of the ethos of blockchain:
the empowerment of individuals. By decentralizing custody, noncustodial
technology proves that greater power can and should reside in the hands
of individuals.


By empowering individuals, we also
create new competition for legacy organizations, institutions and
businesses, which are forced to innovate and deliver more value to their
customers and society as a whole. Equity also is not binary — it is a
spectrum that we can move along.


Blockchain and crypto
don’t need to completely dismantle legacy structures, as there is
already massive benefit simply in pushing them along the spectrum to
more equitable outcomes. This can be realized in reduced banking rates,
improved or more equitable financial services, more effective tax
regimes or government policies, less concentration of wealth in
exclusive financial instruments, and many other ways. The ideal approach
to delivering the best outcomes is one that is pragmatic.


Noncustodial tech proves the industry is maturing 



There
are, of course, many critiques of noncustodial technology and its
applications in the cryptocurrency industry. But ultimately, solving
these complications is driving the industry forward in remarkable ways.


For
example, one of the biggest hesitations many users have around
noncustodial technology is the burden of keeping their own assets
secure. If users lose their private key or mnemonic phrase, if assets
are lost or hacked, or even if their computer is stolen, there is no
getting back into their account or way to retrieve the lost funds. While
this can empower users to educate themselves on the process, it’s also
an opportunity to develop a better user experience, reduced friction and
other enhancements that would ultimately further spread the use of
noncustodial solutions.


Decentralization is a spectrum
too. It is not either a centralized authority or only one individual.
New systems are being developed to decentralize custody to an extent
that it will enjoy the benefits of improved security and financial
empowerment, but maintain options and backups to lighten the burden on
the system itself.


A criticism of noncustodial exchanges
is that they are limited in their scope. That is, the solutions appear
to attract amateur traders or hobbyists who are playing with the tech
and don’t factor costs into the equation. But new solutions are
operating that deliver experiences arguably superior even to legacy
centralized exchanges by combining the speed and liquidity that
traditional exchange traders expect with the security and transparency
of noncustodial technology.

As demand for noncustodial technology increases
and the tech itself continues to mature, a clear signal will emerge for
traditional exchanges to adopt the technology. As adoption grows, users
will no longer be hamstrung by the limits previously associated with
noncustodial services or those that still afflict centralized exchanges,
and this diversification of products in the market will result in
massive improvements in user experience and value delivered to
customers.


Moving beyond blockchain and cryptocurrencies 



The superiority of noncustodial technology and the maturation of the industry as a whole
point to the fact that the tech has wider applications to broader
financial markets. Even trading in traditional markets has decentralized
in the era of the internet. Although still dwarfed by the larger
traditional finance markets, noncustodial solutions are recognized as
the next wave and, as such, have brought massive inflows of capital from
millions of individual accounts — such as Celsius garnering over $300 million in deposits within a year — and legacy organizations are taking notice.


The
potential and necessity of noncustodial technology in securing accounts
in the digital age and decentralizing and distributing security as a
whole is undeniable. The wider adoption of cryptocurrency, digital
assets and tokenization comes with the bearer-instrument Achilles’ heel,
so to deal with this, we need to increase the adoption of noncustodial
technology and educate people about it. We must also continue to improve
it and make it more reliable and easier to use. 

The
views, thoughts and opinions expressed here are the author’s alone and
do not necessarily reflect or represent the views and opinions of
Cointelegraph.



Steven Quinn
is a product manager at Eosfinex and Bitfinex. He focuses on the EOSIO
ecosystem of blockchains and communities, blockchain technology such as
smart contracts and noncustodial wallets, and global trends toward
decentralization and financial sovereignty.