The rise of cryptocurrencies has changed how we think of ownership over financial assets. It’s easy enough to buy Bitcoin or any other altcoin with just a few clicks or taps, and more people are doing so every day.
But, given how cryptocurrencies operate, the question remains: do you own the crypto once you’ve bought it? In this article, we’ll dive deep into the differences between owning, buying, and controlling cryptocurrencies, as those are similar but distinct concepts.
What You Need to Know About Crypto Ownership?
Owning stocks, bonds, or any other traditional financial asset is simple. There are two parties involved – a seller and a buyer. When they sign a contract, the ownership is passed from one party to the other. There’s no such contract, and therefore, there is no such simplicity with crypto assets.
With cryptos, the ownership, therefore, comes to who controls the private keys, allowing them to transfer cryptocurrencies. If an investor buys cryptos but doesn’t control the keys, they may hold on to the assets, but they don’t rely on them.
How Crypto Exchanges Handle Your Crypto
Crypto exchanges can be divided into two types based on how they handle private keys. They are called custodial and non-custodial crypto exchanges. Custodial crypto exchanges hold the keys on behalf of the user- that’s the case with some of the best crypto Bitcoin exchanges out there. Custodial crypto exchanges are easy and convenient to use.
The users fully control the private keys when using non-custodial exchanges. That also means that the users trade directly with one another. Complete control is the main appeal of this approach to crypto trading. However, it’s still a bit too complex for an average user.
Self-Custody
The best way to practice self-custody over private keys and, therefore, crypto assets is to use them. This can be accomplished by keeping cryptos in a crypto wallet. There are hardware and software wallets.
Hardware wallets are physical devices that store your private keys offline, making them highly secure from online threats. Software wallets, on the other hand, are applications that you can download to your phone or computer. Hardware wallets are more expensive and more secure; software wallets are easier to obtain and use, but they can be hacked.
Legal Perspective
Ownership over BTC and other crypto assets isn’t only about control. It’s also a legal question and a somewhat complicated one. Some regulators consider the crypto exchange, which stores assets, to be the true legal owner. This is especially the case for exchanges that pool the coins in a single account. Others, however, are more in tune with the new realities of crypto trading and take the user’s point of view into account as well.
As more investors and everyday users are taking an interest in crypto, the complexity of the regulation will increase further, but it will also make the whole field less libertarian than it was at first.
The Move towards Decentralized Exchanges
Decentralization is the latest and seemingly long-term trend in the field of crypto ownership. Decentralized platforms can be used to lend, borrow, and trade crypto. All of this is done with the control of private keys in the hands of the users. Such an individualistic approach was what first drew users to crypto.
Smart contracts will also play a big role in future crypto development. The overall long-term goal is to benefit from using crypto assets without having to compromise control or ownership.
Shared Ownership
Some crypto platforms also offer a model for shared ownership. With this model, the users keep the ownership of a crypto asset, but they allow third parties to have some control over how they are used. In most cases, the principle is used to allow users to earn passive income.
This model of ownership allows the users to yield, stake, and borrow crypto while the ownership remains in the hands of the initial investor. Staking uses a portion of the cryptos to run and maintain the infrastructure of trading platforms. In return, the investors earn a commission for this service.
To Sum Up
Crypto investors need to take the time to study and learn about the complexities of crypto ownership. Buying cryptocurrencies doesn’t always mean actually owning them. Ownership is determined by controlling private keys. Custodial exchanges are convenient, but they don’t provide full control over crypto assets. Users can be empowered to own crypto assets by using hardware and software crypto wallets or by using non-custodial crypto exchanges only.
The legal and regulatory landscape will further change in the future, as there are more crypto users than ever. These will also change the legal definitions of ownership to catch up with the technological realities of using crypto.