Custodians: institutional-grade custody solutions
The founding ideal of cryptocurrency rested in decentralisation. Yet the software code that allows for the decentralised holding of wealth in a self-hosted wallet also creates multiple points of potential failure from hardware to human. Custodians seek to alleviate these risks, especially for large holders and institutions, while also facilitating opportunities beyond storage. This article provides a fascinating look into crypto cold storage balancing physical, digital, and human points of failure.
Comparisons to traditional brick and mortar banks or brokerage firms help describe crypto custodians. Like banks, crypto custodians securely hold assets for clients with some providing add on services. Cryptocurrency custody solutions are based on private keys, rather than physical vaults. Some custodians take control of the private keys of clients, while others may offer technology that leaves owners in control of their private keys.
BLOCKDATA helpfully categorises crypto custodians into three primary types: custodians, technology service providers, and hybrid custodians.
- Custodians are third-party entities that store and manage customers’ assets.
- Technology service providers furnish clients with the technology to build their own custody solutions.
- Hybrid custody providers combine elements of the first two categories.
Each type of provider will meet the distinct needs of family offices with varying complexities of digital asset holdings and in-house technological capabilities. Family offices will turn to these service providers to secure their assets from theft, fraud, and, possibly, to secure yield opportunities. Custody providers themselves are also a leading investment opportunity in the cryptocurrency platform space.
One reason why security is of such concern with cryptocurrency is that, unlike traditional wire transfers between banks, crypto transactions are irreversible.
“Family offices need to consider access to markets via good liquidity providers and exchange platforms, as well as secure environments for digital asset storage.” – Marc Dominic, Co-founder & CTO, Bitcashier
The Simple take is that the three most important factors to consider for family offices looking for custody providers are regulation, insurance, and tie-ins with additional financial services. These three features combine to offer maximum security and benefit from digital assets.
“There is no reason that in 2022, family offices shouldn’t be holding their own bitcoin. Several companies have made it frictionless for family offices to store the bitcoin themselves” — Andrew Howard, Bitcoin Reserve