Other solutions include storing private keys offline, on paper or a hard disk or other electronic equipment that is not connected to the Internet. But losing physical custody or either the paper or electronic equipment is a real possibility, and in those cases recovery of the cryptocurrency holdings can be impossible. For individual holders of bitcoin, the possibility of losing private keys is a risk; for institutional investors, though, it represents an even more significant risk.
The latter go to extreme lengths to guard against this danger. Some major investors have even been known to distribute portions of a paper wallet across numerous storage units in different locations. The other important reason for the existence of cryptocurrency custody solutions is regulation. Futures commission merchants and foreign financial institutions are also included in this definition. Within the cryptocurrency ecosystem, very few mainstream banks offer custodian services.
Kingdom Trust , a Kentucky-based custodian, was the largest such service for cryptocurrencies until it was purchased by BitGo, a San Francisco-based startup. Put simply, cryptocurrency custody solutions are third party providers of storage and security services for cryptocurrencies. Their services are mainly aimed at institutional investors, such as hedge funds, who hold large amounts of bitcoin or other cryptocurrencies. The solutions generally incorporate a combination of hot storage, or crypto custody with connection to the Internet, and cold storage, or crypto custody that is disconnected from the Internet.
Both types of storage have benefits and drawbacks. For example, hot storage is connected to the Internet and, as a result, offers easier liquidity. But hot storage options may be prone to hacks due to online exposure. Cold storage solutions offer greater security. However, it may be difficult to generate liquidity from crypto holdings on short notice because of their offline nature. Vault storage is a combination of both types of cryptocurrency custody solutions in which the majority of funds are stored offline and can be accessed only using a private key.
One of the emergent major players in the cryptocurrency custody space is Coinbase, the popular digital currency exchange. Coinbase entered the institutional-grade custody solutions area relatively recently, buying up acquisitions like California's Keystone Capital, a registered broker.
In August of , Coinbase acquired the institutional business of storage provider Xapo as well. Swiss bank Vontobel also launched a Digital Asset Vault aimed at institutional investors in the crypto space as well. Cryptocurrency custody solutions have grown in popularity as analysts and institutional investors have increasingly viewed them as a bridge between the traditional institutional investment market and the shifting cryptocurrency space.
At least two developments are expected to affect the future of cryptocurrency custody. The first one is the entry of big players. Established names, such as Goldman Sachs GS , are conspicuously absent from the list of names offering cryptocurrency solutions. Their entry could shake up the nascent market. Some of that is already happening with Coinbase and Fidelity Investments taking the lead in offering or designing cryptocurrency custody services.
The second one is regulatory clarity. Security provisions pertaining to cryptocurrency storage is absent from current regulation. Not only that, businesses are still unclear about the regulations pertaining to cryptocurrencies themselves. The industry will evolve only after regulators step in and set rules for the playing field.
Your Money. Personal Finance. Your Practice. Popular Courses. News Cryptocurrency News. Part of. In addition, you should not allow anyone physical access to your non-custodial crypto wallet. Were someone to discover the PIN or password, they could drain your funds without your knowledge. However, if you do end up losing access to your crypto wallet or forget your password, there is a back-up procedure. Typically, you will have generated a sequential string of 12, 18 or 24 words that is displayed upon setting up your crypto wallet.
Like your password, this should remain completely private and safely stored. With your seed phrase someone could regenerate your crypto wallet even without physical access to your original hardware wallet. Choosing between a custodial wallet and non-custodial wallet is a key decision when it comes to securing your cryptocurrency holdings. Some prefer a custodial exchange account, while others prefer non-custodial wallets, and some end up using a combination of the two.
Regardless of your choice, be sure to always follow best security practices. Cryptopedia does not guarantee the reliability of the Site content and shall not be held liable for any errors, omissions, or inaccuracies. The opinions and views expressed in any Cryptopedia article are solely those of the author s and do not reflect the opinions of Gemini or its management.
The information provided on the Site is for informational purposes only, and it does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. A qualified professional should be consulted prior to making financial decisions. Please visit our Cryptopedia Site Policy to learn more. Cryptopedia Staff. Is this article helpful? Cryptocurrency Wallets.
Any public and private key pair can function as a crypto wallet — even when written on a piece of paper from your notebook. While it is no longer suggested to u A hardware wallet is a secure way to personally store your crypto.
Just be sure to follow best practices so that you are able to recover it should you lose it. Summary With a non-custodial wallet, you have sole control of your private keys, which in turn control your cryptocurrency and prove the funds are yours. Non-Custodial Crypto Wallets: Taking Personal Responsibility for Your Assets Non-custodial crypto wallets give you complete control of your keys and therefore your funds.
It Comes Down to How You Want to Secure Your Crypto Choosing between a custodial wallet and non-custodial wallet is a key decision when it comes to securing your cryptocurrency holdings.
Simply put, crypto custody means securing the private key that proves you own of the funds held within your crypto wallet. The main utility of crypto custody solutions lies in the safeguarding of cryptocurrency assets. Custodian services are generally aimed at institutional. Cryptocurrency custody solutions are independent storage and security systems used to hold large quantities of tokens. Custody solutions are one of the.