Asset Custody or Safekeeping:
1: the act or process of preserving in safety
2: the state of being preserved in safety
Legal Definition of custody: care or control exercised by a person or authority over something: as supervision and control over property that usually includes liability for damage that may occur. (Dictionary, Merriam-Webster)
“When it comes to crypto custody, it works a little bit differently. Digital asset custodians do not technically store any of the assets because all data and transactions exist on a public ledger called the blockchain. Instead, what they guard are users’ private keys – the important part of a crypto wallet that grants access to the funds held in it.” (Coindesk)
The common expression: “Not your keys, not your coins” suggests that crypto hodlers should self-custody, in other terms: keep their digital assets under their total control in hardware wallets by being the sole owner of their private keys, which is a sound advice for funds that require no liquidity (cold storage*), probably being parked at the same address for long periods of time and not involved in any trading activities or even utility cases depending on its related protocol or game.
*Cold storage or wallet: a method of higher security to keep access to digital assets offline, if a secret cannot be reached by malicious actors, it cannot be explored or stolen. Consequently, the assets under this protection method are too slow to be moved, an action that requires getting connected, authenticated and then transacted, and also creates a temporary risk exposure.
**Hot storage or wallet: online, under different levels of protection, ideal for liquid assets, most usual for smaller parts of portfolios which need to be in motion, therefore smaller risks.
When liquidity comes in place (hot storage**), having assets deposited under another party’s custody demands proper concerns on how trustworthy this party can be. History shows us many successful cases of best practices and long thriving business, but also shows us examples of hacks (tech and social), of lost keys, insolvency, and more types of counter-party risk.
The best practices state that client’s assets should always be segregated from company resources, under multiple layers of cybersecurity and redundancy to prevent exposure to above-mentioned risks.
Although convenience and mobility sit on the opposite side of safety and prudence, crypto exchanges can be trusted by being transparent about important aspects of its business, especially: how client’s assets are protected.
Blocktane believes in best practices since day one and uses Balance.ca, a third party custodian that offers military grade security, total segregation of assets, recovery policy, for both cold and hot wallets. The adequate, highly secure and efficient custody is a preventive measure. Additionally, as a mitigative measure all digital assets under custody are covered by a comprehensive insurance policy.
Constantly advancing technology becomes each day more present in everyone lives, regularly delivering disruptions from old ways and leading all of us to a scenario of higher individual autonomy. To understand and get more familiar with concepts like Custody will help on this journey through the crypto universe and to make better decisions with more self-confidence.