New: Wallet recovery made easy with Ledger Recover, provided by Coincover

Get started

Up your Web3 game

Ledger Academy Quests

  • Test your knowledge
  • Earn POK NFTs
Play now See all quests

Custody

Jun 7, 2023 | Updated Jun 7, 2023
Crypto custody involves safeguarding, storage, and management of digital assets on the behalf of individuals or institutions.

What is Crypto Custody?

In the case of traditional financial assets like gold and bonds, your financial institution or bank acts as your custodian. The bank is responsible for holding assets and securities on behalf of the customer to protect them from thefts or losses. The custodian is in control of the assets and is responsible for maintaining ownership record and facilitating settlement and transfer of ownership.

Crypto custody differs from traditional financial asset custody in several ways due to the unique characteristics of cryptocurrencies. 

Unlike physical assets such as gold or paper certificates for bonds, cryptocurrencies are digital in nature, existing solely in electronic form on a blockchain. Moreover, digital assets can be accessed and controlled by cryptographic keys such as public and private keys. These keys consist of complicated alphanumeric combinations which are hard to remember. If you lose the private key, you lose access to your wallets, and therefore the access to your digital assets. 

Unlike traditional financial institutions, crypto custodians do not store your digital assets themselves. Instead, they protect your private keys to keep your funds safe. It provides independent storage facilities for safeguarding your crypto tokens.

What are Crypto Custodians?

Crypto custodians are responsible for storing and managing digital assets on behalf of their clients. However, the downside of a third-party custodian is that they control your private keys. As individuals and institutions entrust their assets to a third party, exposing themselves to the possibility of compromise, mismanagement, or insolvency of the custodian. 

Self-custody allows individuals to have full control over their private keys and the security measures protecting their digital assets. By managing their own keys and using secure offline storage solutions, individuals can minimize the risk of their assets being compromised in a custodian’s infrastructure or through external attacks targeting custodians.

Metadata

Metadata is a basic summary about a larger set of data. Metadata helps users understand the nature and context of a larger set of data.

Full definition

Hardware Security Module (HSM) 

A Hardware Security Module (HSM) is a hardware unit that safeguards and manages cryptographic keys.

Full definition

Cryptocurrency

A cryptocurrency is a virtual or digital currency that doesn’t depend on centralized authority, such as a government or central bank, to process transactions and issue new currency units.

Full definition