Technical Definition

Custody

Custody is the safekeeping and control of digital assets or the private keys needed to access them.

By Crypto University Editorial
Self-CustodyPrivate KeyCold Storage

✦ Key Insight

Whoever controls the private keys generally has the technical ability to authorize transactions involving the assets.

✕ Common Misconceptions

Custody involves different risks. Third-party custody creates counterparty risk, while self-custody creates responsibility for backups, signing security, and key management.

Detailed Explanation

With third-party custody, an exchange, custodian, or institution controls the keys for you. With self-custody, you control your own keys and are responsible for securing them.

In Practice

“Bitcoin held in a custodial exchange account is controlled through the exchange's key infrastructure, while Bitcoin held using your own hardware wallet is self-custodied.”

Dig Deeper

Hardware Wallet

A dedicated physical device that stores private keys offline and signs transactions internally.

Private Key

The secret number that authorises spending from a crypto address.

Cold Storage

Cold storage keeps cryptocurrency private keys offline to reduce exposure to internet-based attacks.

Self-Custody

Holding your own private keys so no company can move, freeze or lose your crypto.

Counterparty Risk

Counterparty risk is the possibility that the other party to a trade, custody arrangement, loan, or contract fails to meet its obligations.