Custody

Custody means storing and managing crypto on behalf of an owner. It mainly concerns who controls the private keys.

What is custody?

A private key is secret digital information that lets you approve a transaction. You can use it to send crypto. The crypto itself is recorded on a blockchain, not literally stored in a crypto wallet.

With custodial storage, a third party, such as a trading platform, controls the keys. You use your account to request a withdrawal or send crypto. The provider processes your request according to its own checks.

With self-custody, you manage the keys or recovery information yourself. You don’t depend on a custodian, but you’re responsible for keeping everything secure.

An example of custody

You buy $100 worth of bitcoin on a platform and leave it there. The platform controls the private keys. If you want to send the bitcoin, you request it through your account.

If you send the bitcoin to your own crypto wallet, you control the keys yourself. You also take responsibility if those keys or recovery information are lost.

Why is custody important in crypto?

Custody determines who can make transactions and who you depend on to access your crypto. A provider may store crypto from multiple customers at shared addresses and keep track of each person’s balance internally.

That’s why custody often plays an important role in news about hacks, blocked withdrawals, or crypto company bankruptcies. Storage by a professional provider doesn’t guarantee complete safety: a provider can make mistakes, get hacked, restrict withdrawals, or go bankrupt.

Self-custody avoids that dependence, but makes you responsible for your own assets. Losing your keys or having them or your recovery information stolen can mean permanently losing access to your crypto.