30 March 2020
Cryptocurrency and Blockchain Technology have been the consistent best friends since its introduction and Evolution has been the perfect kind of the third wheel for them!
With the growing technology, it became very important to secure the cryptos, as it is said, technological growth can be utilized for both the good and the bad deeds. Hence with this, it became very important to choose the storage of the cryptos wise but its custody has been the main core.
At present, if one has to hold crypto assets its either with self custody (meaning you are completely responsible for your keys) or an Exchange looks after it, out of which none are really completely and truly reliant as the institutional investors wouldn’t want to be a part of crypto assets on a full-fledged due to the absence of fully regulated crypto custody service.
So let’s start with a few basics to understand the whole concept of Crypto Custody:
Custodian: Financial institution also known as custodian or a custodian bank that protects the financial securities with regards to minimize any aspect of risks such as theft or loss on behalf of the institutional investors. For this purpose, the custodian charge fee. Various companies service custodian purposes such as State Street Bank, The Bank of New York Mellon, Wall Street’s Fidelity Digital Assets, Bakkt, Coinbase and so forth.
But why is crypto custody so important?
Many firms such as the Ledger Nano and the Trezor have faced issues with securities while investors encounter technical hurdles in buying and storing cryptocurrencies along with security being the one to worry for as all the hard-earned cryptos can go on a toss.
There haven’t been ideal solutions to the institutional investors for investing large amounts in crypto assets, also many are held for security on various reasons at the regulated custodians. This reasons the increasing demand for crypto custody as it facilitates digital assets security and keeps it insured.
Also Read, Everything about Bitcoin wallet and address!
The working process of Crypto Custody:
Indirect ownership is a concept wherein a trusted 3rd party on your behalf is enabled to be the custodian of the cryptocurrency. It is just like the concept we have with traditional financial institutions, however, the only difference is that there is no authenticate cryptocurrency bank accounts by the financial institutions and so it is generally referred to as crypto exchanges. The exchanges here take care of everything for you on a constant note, however, the downside could be when the exchanges are hacked as they are said to be the most targeted prospects due to the amount of crypto value it holds.
Fidelity Digital Assets wrote in Medium, “We imagine a world, soon, where all types of assets are issued natively on a blockchain or represented in tokenized format”. "Addressing custody issues for institutional investors is one critical step in order for these markets to continue to develop. By building native expertise in these technologies we hope to be well-positioned to serve the needs of our clients for the long term."
Direct ownership is a concept right the opposite of the previous one, here the person himself/ herself is at the sole custody of its cryptocurrency without the involvement of the 3rd party. The advantage of this ownership is a complete control over your assets and you could keep it protected personally however the whole technology that underlies with cryptocurrency is pretty techy and for many people, it could be intimidating and complicated.
Crypto Custody in the future could also aid to play many other roles and provide complete service custody solutions for storing all types of digital assets, tokenized real estate, commodities, and security for tokens.
The development of crypto custody will enable the big players to be a part of the cryptocurrency. The security regulations or the least clarity over security will also evolve the face of cryptocurrency.