Cryptocurrencies are increasingly becoming a popular asset class for investors and for hackers too. However, managing and storing cryptocurrencies is becoming the biggest challenge and headache for investors, there should be a mechanism to prevent all your digital assets from hackers' eyes so there is the only solution which is "Crypto Custody".
It is the mechanisms that provide the high level of security required to protect your digital assets from potential threats such as hacking or theft. In this article, we will explore what crypto custody is, how it works, and the benefits and drawbacks of using custody services.
Knowing all about today's topic is a must for each type of investor whether you are a seasoned cryptocurrency investor or just starting out, understanding crypto custody is important to know the safety and security of your digital assets. So without delaying more time let’s get started!
What is Crypto Custody?
Crypto custody is the process of holding and securing digital assets, such as Bitcoin (BTC), Ethereum (ETH), and others, as well as it ensures the safety and accessibility of all these digital assets. Crypto custody is always responsible for the storage and management of cryptocurrency on the behalf of the client. Because digital currencies digitally exist and have no physical existence, unlike traditional currencies which can be held by banks and physical wallets. To store digital currencies we need software which could be a hot or cold wallet, by using these two types of wallet we can securely hold and manage cryptocurrencies for the long term.
Hot and cold wallets both are crypto custody services, by utilizing cold wallets we can store our cryptocurrency offline which means due to the false connection of the internet there is no threat of cybercrime as well as hot wallets store the cryptocurrencies using online software which would be fully owned by you means no third party access to your hot crypto wallets. Click the source to know more about hot and cold wallets.
Examples of Crypto Custody Services
Custody services provide an extra layer of security and protection (multi-factor authentication, digital signature, and other security measures) to investors and can hold their digital assets for the long term with a high level of security. There are so many services of crypto custody given below:
- Coinbase Custody
- Kingdom Trust
- BitSafe
- ItBit
- BitGo
- Bakkt Warehouse
- Gemini Custody
- Fidelity Digital Assets
- Ledger Vault
- Vo1t
- Anchorage
- Prime Trust
- Hex Trust
- Knox
- Copper
- Metaco
- Onchain Custodian
- DACC
- GSR
Use Cases of Crypto Custody
Crypto custody has a number of use cases in the cryptocurrencies ecosystem are listed down:
- Institutional Investment
- Trading
- Staking
- Initial Coin Offerings (ICOs)
- Tokenization
How Does Crypto Custody Ensure Security?
Crypto custody services are responsible for the security of cryptocurrencies and they provide an extra layer of security including:
- Offline Storage
- Multi-Signature Authentication
- Encryption
- Physical Security
- Insurance
Advantages of Crypto Custody
There are several advantages of using crypto custody services are given below:
- Security
- Professional Management
- Convenience
- Access to Institutional-grade Infrastructure
- Compliance
Disadvantages of Crypto Custody
There are also some potential disadvantages of using crypto custody given below:
- Centralized Control
- Cost
- Limited Control
- Regulatory and Legal Risks
- Counterparty Risk
Conclusion
In conclusion, crypto custody is the process that provides the extra layer of security including Offline Storage, Multi-Signature Authentication, Encryption, and Physical Security which helps investors to store and manage their digital currencies in a secure way. It prevents the client’s assets from cyber-attacks and data theft. However, there are also still some potential drawbacks to keep in mind while going to use crypto custody, such as centralized control, cost, limited control, and regulatory and legal risks.
