Blockchain-based digital assets have pretty much taken over the modern financial landscape. Cryptocurrencies like Bitcoin, Litecoin, and Ethereum are some well-known examples of non-tokenized assets. But just as digital assets garnered popularity, security threats became more sophisticated than ever.
This is where crypto custody solutions come in! Crypto custody refers to the secure storage and management of cryptocurrency assets and their keys. Since there is no one-size-fits-all approach, there are numerous types of crypto custody solutions you can utilize.
This detailed breakdown will provide more clarity:
Self-Custody
As the name indicates, self-custody means holding and managing your own crypto assets. When you choose self-custody, there will be no third-party interference.
You can use hardware and software wallets to secure assets like Bitcoin, as well as the keys. You can also utilize advanced solutions like Multi-Party Computation (MPC).
Crypto self-custody is suitable for investors who prefer autonomy and want to avoid counterparty risks. However, you need advanced knowledge of blockchain technology and security protocols to avoid losing your keys.
Third-Party Custodians
Every year, users lose bitcoins worth millions of dollars simply because they lost their keys or forgot the seed phrase. To avoid such unfortunate situations, third-party crypto custody solutions are preferred.
Third-party crypto custody involves delegating the task of managing crypto assets. Custodians used advanced security measures to keep your assets secure. This includes:
- Multi-signature access
- Authentication protocols
- Regular audit
- Insurance and coverage
Reliable custodians like BitGo also comply with industry regulations, such as Anti-Money Laundering (AML) and Know Your Customer (KYC) standards.
They also offer numerous security solutions, such as:
Hot Wallets
These are always connected to the Internet, providing quick and convenient access to your crypto assets and keys. Hot wallets are especially recommended for crypto users who make frequent transactions.
Cold Wallets
In contrast, cold wallets are always offline. They are best suited for investors who need to secure a large amount of cryptocurrencies in an offline, secure location.
Many custodians offer both hot and cold wallets to ensure maximum convenience.
Multi-sig Wallets
These wallets require three to five keys for users to access their funds.
A third-party crypto custody solution is a must-have for institutional investors and cryptocurrency exchanges. They are responsible for managing the keys of hundreds of clients. A reliable custodian can reduce some of the burden. With state-of-the-art security features and advanced infrastructure, they will protect your clients’ assets, helping you become a trusted name in the industry.
Hybrid Custody Solutions
Can’t decide between self-custody or third-party custody solutions? Choose hybrid custody. It blends self and third-party custody, allowing both the user and the custodian to hold control over the assets.
For instance, a Bitcoin user can hold the keys to a hot wallet, ensuring smooth day-to-day transactions. At the same time, they can store large amounts of cryptocurrencies in a cold wallet managed by a custodian.
You will have access to features like customer support, insurance, and real-time reporting, ensuring compliance and peace of mind.