What is Custody?

What is custody?

In crypto, custody is a broad term that refers to the ability to hold, move and protect digital assets.

3 types of custody

1. Crypto Self-Custody through hot and cold wallets

For those seeking complete control over their digital assets, self-custody might be the best choice. This option gives you complete control of your crypto via a personal private key. Within self-custody there are

a. Software wallets: desktop wallets, mobile wallets, and online wallets

b. Hardware wallets: store private key in a secure hardware device

While it might be appealing to control your own storage, there is no third party, like an exchange, that can intervene if you lose your private key.

2. Crypto Partial Custody

A self-managed wallet that offers the added benefit of third-party assistance in securing assets. This can be done through two-step authentication or basic multi-signature protections.

3. Third-Party Digital Asset Custody

This method of custody provides the greatest level of digital asset security. Online or hot wallets are connected to the internet and are generally more accessible. Contrastingly, cold wallets are offline which means signing keys are kept in physically isolated hardware devices with no connection to the internet. Thus, cold wallets have heightened security with the disadvantage of having longer transaction times when compared to cold wallets in some cases.