Bitcoin Custody Explained

Bitcoin custody is an important topic to consider for individuals who own or want exposure to Bitcoin. There are multiple ways to hold Bitcoin, including using centralized exchanges, self-custody options, or relying on custodial institutions and third parties. Centralized exchanges like Coinbase and Kraken are reputable and comply with regulations, making them a popular choice for retail users entering the cryptocurrency market. There are risks involved, such as the potential loss of assets due to hacking or exchange insolvency.

For more sophisticated users who prioritize the maxim “not your keys, not your crypto,” there are self-custody options available. This includes using private hot wallets, which are mobile or desktop solutions that allow users to control their assets by safeguarding their private keys. It’s important to note that significant amounts of Bitcoin should not be stored in hot wallets. Another option is private hardware wallets, which are considered cold wallets because they only interact with external applications when needed. This can provide better security against malicious attacks.

Users should take measures to securely store their private keys, such as avoiding storing them on devices or computers as plain text. Paper wallets can be a simple starting point, but more durable solutions like metal engravings offer better protection. Multisig wallets are another security measure where multiple individuals are required to sign a transaction, providing an additional layer of protection against compromise.

For organizations and high-net-worth individuals, relying on custodial institutions and third parties is a sensible approach. Institutions like Coinbase and BitGo offer custody solutions that comply with regulations and provide high-security measures, insurance, audits, and compliance. These entities have physical security, cold storage, and access controls to safeguard Bitcoin. They also offer transparent reporting and holdings status.

Ownership, jurisdiction, and tax-efficient structures are important considerations when choosing custody options. Global institutions and family offices may have complex legal entities and may opt to hold Bitcoin through holding companies or trusts in different jurisdictions. These choices can impact the available custodial solutions and should be made with the guidance of financial and legal experts to ensure compliance.

Cyril Dipalma

Cyril Dipalma

14 thoughts on “Bitcoin Custody Explained

  1. This article stressed the importance of considering legal entities when deciding on custody options. It’s all about compliance and jurisdiction.

  2. Not your keys, not your crypto is a mantra worth living by. Self-custody options like hot and cold wallets provide users with control and security.

  3. Thank you for highlighting the risks involved in centralized exchanges. It’s essential for individuals to be well-informed about potential vulnerabilities.

  4. Wow, this article really emphasized the importance of Bitcoin custody! It’s crucial to carefully consider how we hold our assets.

  5. I don’t trust these custodial institutions with my assets. They could easily dip their hands into my Bitcoin without me even knowing!

  6. Why are centralized exchanges always portrayed as the bad guys? They’ve been around for years and have a track record of serving their users well.

  7. Multisig wallets may provide an additional layer of security, but they also add unnecessary complexity and potential for human error. No thanks! 😒

  8. The emphasis on compliance and regulations in this article is reassuring. It’s crucial for custodial institutions to prioritize these aspects.

  9. I wouldn’t trust any of these custodial institutions with my Bitcoin. They could easily disappear overnight! 🤔

  10. I appreciate the different options mentioned here. It’s great to have choices, whether it’s centralized exchanges or self-custody options. 🔄💻

  11. The options for Bitcoin custody mentioned here are really diverse. It’s good to have choices that cater to different needs and preferences. 🔄🔒

  12. So basically, if you’re not a high-net-worth individual or an organization, you’re out of luck when it comes to custodial solutions. Nice.

  13. The fact that this article stressed the importance of expert guidance really hit home. It’s always better to rely on professionals for such critical decisions. 📚👨‍⚖️

  14. Storing my private keys on a piece of paper? Yeah, great idea! Because what could possibly go wrong with that?! 🙄

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