What is Custody?

Custody involves the legal responsibility of a financial institution to safeguard and maintain clients' financial assets, mitigating the risk of asset theft or loss.

Understanding Custody

In the financial realm, custody refers to a protective service offered by financial institutions for the securities of their clients. The entity providing custody is termed a custodian, responsible for collecting dividends, interest, and profits from security sales. They charge a fee for these services and allocate funds based on the client's instructions.

Peek into Banking World

Custody has transformed from a personal connection to an interaction with a highly regulated institution. This shift has introduced a new level of financial intricacy, further delineating the confidential world of banking from everyday life.

Modern custodians not only commit to retaining client funds but also utilize these assets for lending purposes to generate returns.

For Both Newcomers And Experienced

Custodians play a crucial role in the financial ecosystem, catering to both newcomers and experienced users by providing advanced trading tools. At the institutional level, the number of firms handling asset storage and management is rising, with some offering insurance to compensate clients in case of financial losses.

Holding Assets

Custodians can hold assets in both digital and physical forms. Typically large and reputable, custodial businesses, such as major banks, manage assets for numerous clients, often totaling millions or billions of dollars.

Custody in Blockchain World

In the realm of blockchain, custodial solutions are commonly provided by third-party crypto exchanges. These exchanges secure private keys alongside cryptocurrency assets like Bitcoin and Ethereum for their users.

Exchanges Custody

Control over cryptocurrency custody lies entirely with crypto exchanges, employing security measures to protect users' digital assets from theft or unforeseen losses. In the event of a hack or theft, the custodian, or crypto exchange, bears full responsibility for reimbursing affected users.

An illustrative case is the Binance hack of 2019, a significant event where $40 million was stolen. The CEO, Changpeng 'CZ' Zhao, promptly announced full refunds for the victims.

Household Name of Crypto Custody

Custodians of crypto assets, including Bitcoin, Ethereum, Cardano, and Terra, are known as crypto custody providers. They extend services to both institutions and individuals seeking to securely store and protect their digital assets within a user-friendly, secure, and compliant custodial platform.

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Closing Thought

While cryptocurrency custodians offer a reliable means of storing digital currencies, users must exercise caution against potential major hacks that could lead to irreversible fund losses. 

Experienced crypto investors often advocate for holding a substantial portion of digital currency holdings in cold storage, especially if users are not actively utilizing or planning to use them in the near future. This precautionary measure is crucial to guard against hacking incidents that might occur on a custodian platform.

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.