Custody of cryptocurrency refers to the safeguarding and management of crypto assets. The security of crypto assets is all about the keys.

Crypto wallets are where cryptocurrencies are ‘stored’ and are used to send and receive funds. Wallets contain a public and private key pair that are used to grant access to funds. 

Custody wallets are where a third party takes control of the private keys meaning they have access to the funds. By contrast, a self-custody, or non-custody, wallet does not have any third-party access and users remain in sole control of their keys at all times.

Widely available free custody wallets are typically provided by exchanges that take responsibility for managing wallet keys, signing transactions and safeguarding users’ assets. This requires a high level of trust in the service provider and there should be strong security features in place, such as 2FA, biometric authentication, email confirmation or other security measures. 

Custodial wallets provide some advantages for users, such as ease of access and usability, often not requiring software or hardware set-up and only requiring the creation of an account. They can also offer account recovery in the case of forgotten passwords. 

There are custody solutions designed for large holders of cryptocurrencies who wish to spread the risk of storing crypto assets. These are paid services from specialised organisations that store and manage assets using state-of-the-art security measures and can be fully insured in the case of loss. 

These often remove the complexity for the user and make use of multi-signature processes, where multiple keys are needed in order to make a transaction, so even if one key is compromised, the nefarious actor still cannot move funds without additional keys. They often only support the most established cryptocurrencies and may require a minimum amount to be deposited in order to open an account. 

Non-custody wallets are wallets where the user is in complete control of the wallet keys. This means that while they are the sole operator of the wallet, there is little to no recourse in the event of loss of funds, passwords or recovery phrases. They are more complex than custody solutions but offer more assets and integration with DeFi applications and can be free.

While this sounds daunting, this is often considered the best solution for the vast majority of crypto-users due to the lack of shared risk with a third party that can be hacked or face bankruptcy or legal action. 

The question of custody solution is different for each user. Custody solutions are generally considered less secure and face a different set of risks than self-custody wallets. However, once a certain value threshold is reached, a specialist custodian may be the best option as they offer both ease of use and the highest levels of security against loss and theft that would be hard to recreate individually.