Last updated: November 2023 / 816432 o'block
If you're like me, for most of your life most of your money was in other people's custody. My parents took care of it when I was a kid; my bank took care of it when I grew up; what I earned was automatically transferred from my employer to my bank and health services and I never had to give any of it much thought. It wasn't until I started learning about Bitcoin that I really thought about self-custody. I'll be honest: being the sole person in charge of my money, knowing it all depends on how well I've understood the risks and protected against them, knowing I'll have no one else to blame if something goes wrong - it's unsettling. It took some getting used to.
If you are reading this, chances are you have your bitcoin on an exchange but are not sure if you want to transfer it to your own wallet; and I probably know how you feel. It's a step into unknown. If you are smart, it's causing a bit of caution or worry. Well, I don't have all the answers, and those I do are silly simple, but they did help me figure things out and maybe they'll help you along as well. Here goes.
Making decisions is hard. Making decisions about things you know little about is even harder. All the uncertainty and unknowns can prevent you from making a decision entirely; you just procrastinate until nothing happens.
You can make that procrastination work for you instead. Your decision whether or not you want to self-custody all your money may indeed be better left for later; but use that delay to learn about how Bitcoin works. Instead of putting in your money and risking losing it all, invest instead some of your time. Knowledge isn't stolen as easily as money, and once you know more, it won't be so easy to steal money from you either.
Make exploration your first step, allow yourself the time to learn. Having good information will naturally lead to good decisions.
This will seem obvious but many people miss it: you don't have to go all in straight away. Whether to invest big into Bitcoin or not invest at all are not your only options. If you go baby steps, the process may be easier.
For example: consider getting just a software wallet on your phone, transferring a small amount of bitcoin onto it and then - just playing with it. Send it to your friends; have them send it back. If your friends won't play, get another wallet and send bitcoin back and forth a few times to see how it all works. When you have that figured out, delete the app from your phone and set it up again and try to restore your wallet from seed. Do it twice or three times if you want to be extra sure. If that's fun and you're feeling more confident, get a hardware wallet and play with that: set it up, wipe it, restore the wallet again. Keep a small amount of bitcoin in those wallets and just wait and watch. The longer your bitcoin stays there and stays safe, the better the chance that your security level is good and your money safe. Maybe try to set up a watch-only wallet. Try anything you are curious about. Playing with small amounts of money will help you feel at ease but also gain experience and self-confidence. At the end of the process, you'll have a much better overview of how Bitcoin works and your own abilities to use it, and it will be easier to make decisions involving larger amounts of money.
Note also that sending on-chain transactions costs money. At the time of writing this, these fees are fractions of a dollar and low enough that most people can afford to pay for them in order to get better at securing larger amounts of bitcoin they may accumulate in the future. It's worth considering that, if the Bitcoin network is successful and alive in the future, the growing demand vs. limited block space may result in increased transaction fees. It's possible that at some point the transaction fees will become too large for us to just fool around with bitcoin. You may want to arrive to that future already with some experience of how to use bitcoin and able to take advantage of the increased security of Bitcoin without having to pay a lot to learn.
Ok, maybe you've done all of the above and you're still not ready to transfer all your bitcoin from an exchange to cold storage. Certainly not 100% of it. That's a bit much. But how about 20%? 15%? 10%? There is probably an amount you would feel comfortable with. An amount that says, "I'm daring and trying new things here, but I'm not stupid, OK?"
If you can't come up with the right percentage, you are probably forgetting that keeping your bitcoin on an exchange also involves some risk. Exchanges go under, accounts can be hacked, stuff happens. Keeping money anywhere is risky - it can be stolen or lost from your pocket or bank or home. There is always risks in everything; attempting to avoid all risk entirely is setting yourself up to fail for sure. A better goal is to balance your risks so that even if there is an unfortunate turn of events you haven't lost all your bitcoin and you can recover. If you feel more comfortable keeping bitcoin on an exchange, that's where most of it should stay - but keep in mind that if something goes wrong with the exchange, the small amount you took out and put in cold storage may be all you have left.
Starting small is good enough. With time, your confidence and information about exchanges and Bitcoin may change and you can adjust your balances accordingly.
Graphical abstract: for when you just need a quick overview or reminder - same stuff as above, just all in one image.
