Custody

What is Custody?

Custody in the context of cryptocurrency refers to the management and safekeeping of digital assets by a third party on behalf of the asset owner. This typically involves the use of a custodial wallet, where the private keys that control access to the funds are held by the service provider instead of the user. These types of arrangements are common in centralized exchanges, digital asset platforms, and institutional trading environments, where the goal is to offer users a simplified and secure way to store and manage their assets.

Custodial solutions are designed to deliver ease of use, especially for individuals and businesses that prefer not to handle complex private key management. They often come with additional services such as multi-signature protection, fraud monitoring, and integration with regulatory compliance tools like Know Your Customer (KYC) and Anti-Money Laundering (AML) systems. This makes them particularly attractive to regulated institutions, enterprises, and less technically experienced users who prioritize convenience and accessibility.

However, the use of custodial services requires a high level of trust in the provider, as users must rely on the custodian to manage the keys securely, maintain operational integrity, and ensure asset availability. If the custodian is compromised, becomes insolvent, or experiences technical failures, users risk losing access to their funds. For this reason, the trade-off between control and convenience is a central consideration when choosing between custodial and non-custodial solutions. In contrast, non-custodial wallets grant users full autonomy over their private keys and therefore full responsibility for their digital assets.