Self custody: keep your nano in a non custodial crypto wallet
This article is written by a community contributor and does not represent the views of the Nano Foundation.
Nano enthusiasts will often tell you to move your cryptocurrency off exchanges, and into a non-custodial wallet. This article aims to explain why you should do so. Not because you’re altruistically trying to help the network, but for your own security, to improve the decentralisation of the network, and to increase the value of your nano.
1. Own your own nano
When you buy nano on an exchange such as Binance, Kraken or Bitvavo, the exchange shuffles around some numbers in their internal ledger. Person A had 1000 nano and $0, while you had 0 nano and $5000. You’ve now bought their nano, so Binance changes some numbers to reflect that you now own 1000 nano and $0.
However, these are all simply numbers in an exchange’s database. The actual nano are held in the exchange’s wallet, and do not move when this transaction is done. What you practically have is an IOU from Binance saying “we owe you 1000 nano”.
If Binance was to go offline today, or if hackers manage to break Binance’s security and empty Binance’s nano wallet, you are relying on Binance’s insurance to be able to repay you the stolen nano. This holds for any crypto. This is not just theoretical, there are lists of exchanges exit scamming, and lists of security breaches and hacks.
By withdrawing your nano, you turn an IOU from an exchange into cold hard nano. Whatever happens to the exchange, you have your nano in hand. Taking your nano off exchanges into a self custody wallet means having complete control over your own money; the original goal of crypto. You’re able to pay with your nano, send them to others, or just hold them with the knowledge that no one else can access them.
2. Improve decentralisation of the network
Nano uses a consensus mechanism called Open Representative Voting. Essentially, 1 nano = 1 vote. You can either run your own node, or vote for a node to represent you, and nodes then validate transactions.
For nano to be as decentralised as possible, we want the weight to be as spread out as possible, with as many Principal Representatives as possible. The more the vote weight is spread out, the harder it is to stall the network. Since exchanges hold a lot of nano, they hold a lot of weight and are often the biggest single nano holders. In fact, Binance is the single biggest nano holder.
Withdrawing your nano from those exchanges is the single easiest way to help with this decentralisation, and it only takes a few minutes.
3. Increase the value of your nano
Helping with decentralisation of the network sounds a hell of a lot like an altruistic argument, and we do not want to rely on altruism. Luckily, there are strong incentives to withdraw your nano. Aside from the aforementioned added security gained by owning your own keys, taking your nano in self custody also directly increases the value of your nano holdings.
First of all, the more decentralised a crypto network is, the more secure it becomes and therefore the more valuable it becomes. In other words, by withdrawing nano from an exchange into a non-custodial wallet, you directly make the network more valuable.
Second of all, keeping your nano on an exchange allows traders to “short” nano. Shorting essentially means a trader borrows nano, sells them immediately (say at $7), and promises to repay them at a future date. If the price at his future date is lower (say $5), he has made a $2 profit per nano.
Binance, Kucoin, and most other exchanges offer the ability to go short for individual traders and institutional investors. By withdrawing your nano from exchanges, the total amount of nano that can be shorted is decreased, and the cost to short increases as there is less supply.
How to take self custody of your nano
On most exchanges this can be very simply done by clicking your nano and then finding the withdraw button. What you will need is a nano address (nano_) to send your nano to. If you have small amounts, I personally find Natrium.io (mobile) or Nault.cc (desktop) the best non-custodial wallets. If we’re talking about bigger amounts, it might be worth getting a hardware wallet.
Whatever option you choose, the most important aspect is to safely store your seed. Your seed, a 24-word code, is essentially the access to your wallet. If you lose your phone, you will still be able to get into your wallet by just loading this code into a wallet on another phone or desktop. Conversely, anyone that knows your 24-word code can access your wallet. Make sure to store it safely, and do not share it with anyone.
Once you’ve transferred your nano into your self custody wallet, make sure to select a representative, preferably one with low vote weight, to further decentralise the network. Nault and Natrium both have a list with recommended representatives, if you want to learn more about the representative you’d be voting for, MyNanoNinja offers more information.
Regardless of whether you want to help decentralise and secure the nano network, want to increase your own security, just like to support Nano or want to increase the value of your holdings, withdrawing your nano to a private wallet is a good idea. If you have a question regarding how to withdraw or any other question relating to Nano, r/nanocurrency on Reddit is filled with enthusiasts that would gladly help you out.
Senatus is a crypto enthusiast and long-time member of the Nano community. You can find more of his writings on Substack.
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