The financial services industry is in the middle of a global transition as digital assets like cryptocurrencies and NFTs replace tokenized real-world assets. But before investors and traders could fully trust the system, they need to know that their digital assets would remain safe. This is where digital asset custody solutions come in!
Let’s take a closer look at what digital asset custody is, how it works, and why you need it.
What is Digital Asset Custody?
Digital asset custody encompasses various methods of storing and protecting digital assets. Just as financial institutions store an individual’s physical assets, digital asset custodians protect digital assets on behalf of their owners. This could be individuals, hedge funds, crypto investors, and cryptocurrency exchanges.
Digital assets like cryptocurrencies are transferred through a decentralized network called the blockchain. Think of it as a digital ledger that stores the details of every cryptocurrency transaction ever made. Owners can access their assets and make transactions using cryptographic keys.
Custodians like BitGo don’t necessarily store assets; rather, they store the owners’ cryptographic keys.
Cybercriminals typically attach three common vectors. This includes:
- Private keys
- Deposit addresses
- Authentication and credentials
A reliable digital asset custodian can secure all three of these vectors, ultimately protecting your digital assets.
Why You Need Digital Asset Custody Solutions
As tokenized assets become popular, individuals and institutions need robust digital asset custody solutions.
More specifically, individuals need asset custody solutions for:
Enhanced Security
There is a common saying in blockchain technology: No keys, no coins. Private investors and individuals might find it challenging to manage their private keys. Digital custodians will keep your keys secure in hot wallets, cold wallets, and warm wallets.
If you wish to make frequent transactions, your digital custodian will suggest using a hot wallet. Whereas, if you’re investing in digital assets as part of a long-term strategy, a cold wallet would offer robust security.
Ease of Use
Ease of use is another important reason why you might need to avail digital asset custody solutions. This is especially true for participants who are new to the space. An asset custodian will take care of everything on your behalf, so you can develop other skills.
Financial institutions and hedge funds might need digital asset custody solutions for the following reasons:
Risk Management
Institutions bear the responsibility of safeguarding their clients’ assets. A reliable asset custodian will ensure secure key storage, smooth retrieval, and protection against fraud. You can boost operational efficiency as well as your reputation.
Regulatory Compliance
Regulatory compliance is of utmost importance. Reputable digital asset custodians comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. In short, digital asset custodians can provide industrial-grade services.
Scalability
Institutions can’t take a one-size-fits-all approach. This is why digital asset custodians scale their services and capabilities. As you take on more clients and handle complex crypto transactions, your custodian will grow its capabilities with you. The good news? Digital asset custody solutions become more cost-effective with time.
