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What is crypto custody?

what is crypto custody
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If you've invested in cryptocurrencies, you've likely wondered how to safely store your crypto assets. In the complex crypto economy, crypto custody solutions have emerged as an important service for protecting cryptocurrency holdings.

Crypto custody means keeping private keys safely in a wallet that is not connected to a crypto exchange. This keeps crypto assets safe and lets you control the risks as well.

Join us in this guide as we explore the ins and outs of crypto custody, explaining what it is, how it works, the benefits it provides, and the different types of crypto custody options available. By the end, you'll have a solid understanding of this crucial aspect of the cryptocurrency landscape. Let’s start!

How does crypto custody work?

Most crypto custodians employ a "cold storage" system to hold the vast majority of clients' funds offline in securely-air-gapped, encrypted hardware wallets.

A small "hot wallet" holds just enough funds to facilitate deposits and withdrawals. Multi-signature security, which requires more than one private key, helps protect against theft. Assets are also frequently distributed across multiple geographic locations, so no single point of failure exists.

Custodians additionally conduct regular security audits and maintain insurance against hacks or losses. Top custodians focus heavily on compliance and meeting evolving regulations. Their goal is to provide ultra-secure, insured protection for crypto holdings that rivals traditional custodial services.

What are the types of crypto custody?

There are a few main options when it comes to holding cryptocurrency:

Self-custody

As the name suggests, self-custody means taking full control of private keys and being solely responsible for their security. This provides maximum autonomy but requires technical knowledge and diligent key management. Tools like hardware wallets are popular for self-custody.

Third-party custody

Professional custodians securely store private keys on behalf of customers. They range from big institutions like Cryptobunq to smaller, specialized outfits. Pricing structures vary but are usually based on the balance held. Insurance is also commonly offered.

Exchange wallets

Holding crypto on crypto exchanges involves ceding control to their custody solutions. While convenient, funds are fully dependent on exchange security and robust operational procedures.

crypto custody

What are the benefits of crypto custody?

By using a reputable third-party crypto custodian, individuals and businesses gain important benefits over self-custody:

Institutional-grade security

Institutional-grade encryption, multi-signature security, geographic redundancy, and regular audits provide security far beyond most individuals' abilities.

Insurance protection

Major crypto custodians insure client assets against hacks or losses, providing the peace of mind traditional finance provides.

Regulatory compliance

Top custodians diligently comply with evolving rules to give their services legitimacy for serious investors and companies.

Simplified management

Custodians handle stressful key and crypto wallet management tasks, freeing clients to focus on their crypto investments.

Institutional access

Crypto custody enables involvement in opportunities normally restricted to big players, like ICO participation and crypto staking and yielding rewards.

What is the difference between crypto custody and traditional custody?

While certain regulated institutions already offer crypto custody, the process differs greatly from traditional asset holding. Keys in crypto are essentially digital passwords, and extra steps exist to secure them from online theft or compromise.

Vaults can physically store traditional assets without the risk of remote access. Still, crypto custody aims for the same secure, regulated environment users expect from familiar banks and custodians when it comes to savings and investments.

How do I take self-custody of crypto?

While third-party custody offers the most benefits, self-custody remains an option. The basics are:

  • Get a software, mobile, or hardware wallet. You can check out “How do I get a crypto wallet?” to learn more details. Never choose services claiming to give "free coins.".
  • Store your 12- to 24-word recovery seed phrase securely offline in multiple physical locations in case of loss. Ensure to back it up properly.
  • Enable the strongest authentication via passwords, PINs, and biometrics your type of crypto wallet interface provides.
  • Regularly backup your wallet file or private keys and store backups securely, like in a bank safety deposit box or encrypted cloud service.
  • Practice secure internet and device behavior to avoid malware stealing your keys. Offline transactions offer the best security when possible.
  • Taking self-custody of crypto requires diligence; few have to keep assets 100% safe from loss or theft, so most recommend seeking experienced help from reputable custodians. Always research proper self-custody techniques.

self custody of crypto

Is MetaMask a custodial wallet?

MetaMask is a popular crypto wallet available as a browser extension or app. While it allows users to retain custody of their private keys, it also comes with some caveats:

  • MetaMask stores the keys encrypted in the browser's local storage. Your password unlocks this encrypted key. So MetaMask itself never sees your unencrypted private key.
  • However, if an attacker were to gain access to your computer, they could potentially access the unencrypted private key through the browser or application data.
  • Funds are still technically under the user's control, unlike a custodial service where the provider looks after keys. But MetaMask does make private key backup and recovery slightly more complex than hardware wallets.

MetaMask is non-custodial as long as your computer security remains uncompromised. But hardware wallets provide an additional layer of physical key isolation for maximum security when self-custodying large balances.

If you want to learn more about how to store your assets on MetaMask, make sure to check out “How to add EURK to your MetaMask?”. EURK is a euro stablecoin that is 1:1 pegged to euro currency and has reserves in Swiss banks.

Therefore, EURK is a great example of a reliable stablecoin to show how to store it securely on a crypto wallet. You can also check out the guide “How to Secure Your Crypto Assets?” for more strategies.

What is the difference between third-party custody and crypto custody?

In layman's terms, third-party custody simply means the safekeeping of assets by a trusted outside party, versus self-custody, in which you are responsible for your assets. Crypto custody then denotes third-party storage of digital currencies and tokens specifically.

The main differences are:

Subject matter

Third-party custody involves any assets (real estate, securities, gold, etc.), while crypto custody focuses solely on cryptocurrencies.

Asset type

Crypto custody manages private keys, digital wallets, and confirmation of crypto reserves on blockchains rather than physical assets.

Regulations

Crypto remains less regulated than traditional holdings, requiring tailored security, insurance, and compliance from qualified providers to secure stablecoins like EURK.

Technology

Blockchain protocols for transacting and verifying ownership of P2P digital assets differ from traditional finance systems.

Crypto custody provides the same custodial service, just for the novel technological asset class of cryptocurrencies, through specialized expertise upheld to high standards like those followed by EURK euro stablecoin issuers. Both safely maintain total ownership for customers.

The bottom line

With the maturing crypto economy increasingly making crypto custody a necessity, we can expect greater standardization, oversight, and innovation across solutions in the near future.

Early-growing pains will continue to smooth out as prudent companies help strengthen protections. For most users, expert custody will become the prudent choice over self-reliance due to the risks and responsibilities involved.

Designing frameworks to make digital wealth as secure, accessible, and trusted as physical assets is crucial for the future of cryptocurrency. Therefore, using secure digital assets is just as important. EURK is a secure stablecoin that you can trust in this regard.

As the best euro stablecoin and secure euro stablecoin platform, EURK provides robust security, transparency, stability, and liquidity to its users. You can easily store your EURK assets on a compatible euro stablecoin wallet and manage them easily.

You can follow the current status of EURK on CoinGecko or buy EURK directly from secure crypto exchanges such as KoinBX and Coinstore. Become a partner and explore stability, security, and efficiency with EUR stablecoin EURK!

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Digital assets are subject to a number of risks, including price volatility. Transacting in digital assets could result in significant losses and may not be suitable for some consumers. Digital asset markets and exchanges are not regulated with the same controls or customer protections available with other forms of financial products and are subject to an evolving regulatory environment.

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