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Crypto custody: What are the benefits of using third party custodians?

Catharina D.
February 16, 2023
4 min

In digital assets, crypto custody is essential to protect against theft or loss of valuable assets. Third-party custodians safeguard clients' assets, shielding them from potential security threats. Unlike traditional custodians, digital asset custodians don't store assets themselves; instead, they secure clients' private keys, granting access to their funds.

Crypto custodians play a significant role in promoting the widespread adoption of digital assets, especially for institutions that manage large amounts of money, such as hedge funds, pension funds, investment banks, and family offices. Many people still avoid investing in digital assets due to security concerns. Fortunately, solutions for secure crypto custody are readily available on the market already today.

There are two main types of crypto custody: self-custody and third-party custody.

Self-custody involves managing your wallet and personally holding your private key, which gives you sole ownership and access to your funds. However, being your own custodian carries risks, as losing access to your device or forgetting your private key could permanently lose your crypto holdings.

On the other hand, third-party custodians hold clients' private keys safely and ensure the security of their assets and manageability. Worldwide, three types of third-party crypto custodians are based on financial institutions: cryptocurrency exchanges, digital asset managers, and custodial banks.

When choosing which crypto custody solution to use, it is essential to consider your needs first. The right option will depend on your investment style, the amount you hold, and your familiarity with technology.

Crypto custody with a third party can have several key benefits, including:

  1. Increased security: One of the most significant advantages of using a third party for crypto custody is increased security. Crypto custody providers typically have extensive security measures to protect their clients' assets, such as multi-factor authentication, encryption, and cold storage.
  2. Professional expertise: Third-party crypto custody providers are often highly experienced in managing and safeguarding digital assets. By entrusting your assets to a professional custody provider, you can benefit from their security, risk management, and compliance expertise.
  3. Reduced risk of loss or theft: Crypto custody providers are typically insured against losses due to theft or other malicious activities. This can provide an additional layer of protection for your assets, reducing the risk of loss due to external threats.
  4. Regulatory compliance: Third-party crypto custody providers are often subject to regulatory oversight, which can provide reassurance that they are operating in a compliant manner. This can be particularly important for institutional investors, who may have strict regulatory requirements for the safekeeping of assets.
  5. Convenience: A third-party custody provider can conveniently store and manage your crypto assets. Many providers offer user-friendly interfaces, account management tools, and reporting capabilities, making it easy to track your holdings and manage your portfolio.

Overall, crypto custody with a third party can offer significant benefits for investors looking to store and manage their digital assets securely. When selecting a custodian, it's important to consider factors such as security, regulatory compliance, insurance coverage, and ease of use, among other things.

Read more about our custody services here:

This text is intended to inform and is not an investment recommendation.

Catharina D.
February 16, 2023
4 min
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