What Exactly is Crypto Custody
In the crypto sector, there are countless horror stories about money being taken, computers being hacked, and passwords being lost. Custody of crypto becomes important in this situation.
Crypto custody refers to the procedure of protecting assets from theft. Custodians, who you can employ to manage your cryptocurrency on your behalf, serve as guardians of your funds, whether they are in the form of cash, stocks, gold bars, or digital assets. One of the foundational elements of the conventional banking system, custodians have existed since the 1960s.
Custody of Cryptocurrencies Operates Somewhat Differently
Since all information and transactions are recorded on a public ledger known as the blockchain, digital asset custodians aren’t actually holding any of the assets. Instead, they protect users’ private keys, which are essential to a crypto wallet since they allow access to the money stored within.
For digital assets to be widely used, crypto custodians are crucial. Even now, a lack of security prevents many institutional investors from purchasing digital assets. Regulation mandates that organisations that manage significant sums of money, like hedge funds, pension funds, investment banks, and family offices, have a custody partner to protect their clients’ money.
The demand for crypto custody services soared as more institutional investors began dabbling in digital assets and businesses like MicroStrategy started putting significant sums of cryptocurrency on their balance sheets. According to a Blockdata analysis, the value of digital assets under custody increased from $32 billion in January 2019 to $223 billion in January 2022, a sevenfold increase.
How Does Crypto-Custody Operate
Cryptocurrency custody, put simply, is the act of protecting the private key that certifies your ownership of the money stored in your digital wallet. As required by law, all custodians in traditional banking are financial institutions. But with cryptocurrencies, owners can act as their own custodians. Using gold bars as an example, you have two options for keeping them secure: either you hide them beneath your bed for your own protection, or you pay a third party custodian to lock them in a vault guarded by security personnel.
With that in mind, you should be aware of the two primary categories of crypto custody.
Self-Custody
Self-custody, as previously mentioned, refers to having physical possession of your wallet’s private key. As a result, only you have access to and can demonstrate ownership of your money. However, enormous power also entails immense responsibility.
Being your own custodian entails full control over your finances, but it also implies that you take on all associated risks. Your cryptocurrency will probably be lost forever if you forget the private key or lose access to your physical device (cold wallet).
Non-Parental Custody
People who don’t want to manage their own accounts or find dealing with the technology to be too scary may wish to contact a third-party custodian. These are incorporated, licensed financial institutions that are authorized to operate as custodians on a state- or federal level.
Banks With Custody
After been given permission by the Office of the Comptroller of the Currency (OCC) to do so, all nationally chartered banks in the United States will be able to offer crypto custody services as of July 2020. This made it possible for market leaders in custody, like BNY Mellon, Citibank, and Fidelity, to enter the cryptocurrency custody space.
Keep in mind that some third-party custody providers, including as Fidelity, BitGo, and Bakkt, are exclusively accessible to institutional investors. Others can have a minimum balance requirement that is so high that it prevents the majority of regular users from using their services. For instance, Coinbase Trust, the company’s specialised cryptocurrency custody service, demands a staggering minimum balance of $500,000 in digital assets to be eligible for its custody system.
If you don’t have that much money invested in cryptocurrencies, don’t worry. Some custodial companies now offer their services to retail customers as well.
Swiss Crypto Custody Platform
As user demand for custody increases in the nation, Switzerland’s Post Office plans to introduce cryptocurrency trading through its banking division PostFinance.
In the next two years, an internal trading and custody service will allow the 2.7 million customers of PostFinance, the fifth-largest bank in the nation, to buy and sell Bitcoin and other cryptocurrencies.
Dörte Horn, a PostFinance spokeswoman, revealed to Cointelegraph that the executive board views digital assets as a key growth area and that, by 2024 at the latest, PostFinance would offer direct access to cryptocurrency exchanges through a proprietary service it owns.
It represents the institution’s most recent effort to give its customers access to cryptocurrency. To create the Yuh mobile application, which allows users access to traditional shares and stock exchanges as well as more than 25 cryptocurrencies, PostFinance teamed up with online trading platform Swissquote in 2021.
Horn stated that although the two companies’ joint venture would continue, Yuh’s move to a new consumer sector has caused it to function independently from PostFinance’s retail division. This is one of the factors driving PostFinance to create a stand-alone solution.
Julius Baer, a Swiss Wealth Manager, Sees Possibilities in Cryptocurrency and Debt Financing
Post Finance wants to give customers direct access to these markets, although more tech-savvy users are happy using a third-party service provider like Yuh as their country’s gateway to the cryptocurrency markets, as Horn explained:
“PostFinance customers have a very high demand, and the market is expanding with a wide range of intriguing DLT or blockchain-related choices. Due to their own bank’s limited service offerings, many clients decide to use a foreign exchange to trade cryptocurrencies.
Additionally, Post Finance stated that it is assembling a “digital assets team” to expand its cryptocurrency offering and keep on adding new features and products once its platform is operational.
Switzerland is still a major hub for blockchain and cryptocurrency adoption. The most recent area to announce acceptance of Bitcoin, Tether, and LVGA tokens as a recognised form of payment for taxes, public services, and tuition costs for students was the Italian-speaking Swiss town of Lugano, which just announced a cooperation with Tether.
In the meanwhile, the Swiss Central Bank’s views on the creation of a central bank digital currency have been conflicted (CBDC). While its governing board was still debating the dangers, Project Helvetia was started to test the use of a CBDC with local commercial banking partners.
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