How to Select the Ideal Asset Custodian
Cryptocurrency custodians are financial institutions or service providers that store cryptocurrencies on behalf of their clients. They are similar to traditional custodians but with a focus on the security and storage of cryptocurrencies.
How to Select?
When choosing a cryptocurrency custodian, it is essential to consider the following factors
Storage Type
Smaller entities such as family offices, small-scale cryptocurrency funds, and individual users often rely on traditional self-custody solutions such as Metamask, Trust Wallet, and Ledger hardware wallets. Although these solutions may have a higher learning curve in terms of technical setup, they are favored by users due to their lower cost. However, self-managing private keys can become a significant burden as private keys are prone to being lost, stolen, or subject to human error, resulting in irrecoverable losses. Cryptocurrency custodians typically offer more flexible and secure MPC wallet custody services. They can also provide cold storage, an offline option for storing cryptocurrencies that maximizes protection against threats. Alternatively, you can opt for a multi-signature wallet that requires multiple keys to authorize transactions.
Security Infrastructure
Security is at the core of custodianship. When selecting a custodian, it is necessary to assess the security infrastructure they employ to protect digital assets. Do they utilize advanced encryption technologies to mitigate rapidly evolving threats? Do they possess the technical expertise and multi-layer defense mechanisms to withstand internal and external attacks? Look for custodians recognized as leaders in the field of digital asset security.
Regulations and Compliance
Another characteristic of top-tier cryptocurrency custodial institutions is their regulatory compliance and licensing. This demonstrates their trustworthiness and ensures that their product has robust security measures. Additionally, you may undergo KYC verification, allowing the cryptocurrency custodian to have the identity of their users, thereby reducing risk.
Insurance Coverage
To guard against theft or loss of cryptocurrency assets, custodians may provide additional security through insurance coverage for their clients.
User Experience
Cryptocurrency custodians should offer user-friendly services, intuitive interfaces, and tools for managing and accessing digital assets. They should also have a good reputation and provide clear policies regarding fees, security practices, and custodial procedures.
Fees and Packages
Understanding the pricing structure of custodians is crucial to ensure that cryptocurrency custody aligns with your budget and expectations. When evaluating custodial solutions, consider the features you require and the value of the cryptocurrency assets you plan to store. Pro tip: Institutional-grade custody can be inexpensive, especially if you’re a growing startup team. Consider opting for relatively affordable pay-as-you-go options.
Why Do We Need Cryptocurrency Custodians?
Cryptocurrency custodians are beneficial for individuals, as well as businesses and institutions, for several important reasons. The following are some key advantages they bring:
Security
One primary reason to use a cryptocurrency custodian is their robust security protocols, such as the storage types and key management methods we discussed earlier.
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Risk Mitigation
Institutional Investment
Custodians often provide insurance for their digital assets, offering additional protection against potential losses or theft. Outsourcing storage and security to custodians can lower operational risks associated with self-custody, such as unauthorized access or human errors.
Cryptocurrency Custodian Standards
Custodians must adhere to several important standards to provide cryptocurrency asset custody services. Here are the main ones:
Security Standards
Cold storage and multi-signature or MPC wallets are key security measures to protect assets from online hacking attempts. They require multiple transaction approvals, encrypt sensitive information, and undergo regular external audits to enhance these measures.
Regulations
Regulatory compliance is emphasized, including operating under regulatory licenses, implementing AML (Anti-Money Laundering) and KYC (Know Your Customer) procedures, and maintaining accurate records and reporting for transparency and accountability.
Operational Standards
Insurance helps mitigate potential losses due to security vulnerabilities, theft, or operational errors. Business continuity and disaster recovery plans ensure asset protection and authorized personnel access to systems and data.
CipherBC — Secure Cryptocurrency Custodian
Assessing Security Protocols
We invite third-party platforms to evaluate our security protocols for impartiality and transparency.
Regulatory Compliance
We adhere to regulations in various jurisdictions, including AML, KYC procedures, and licensing, and can currently serve 176+ countries.
Insurance Coverage Evaluation
It is crucial to ensure the custodian has sufficient insurance to compensate for potential losses due to theft, hacking, or other security vulnerabilities. Understanding the terms and limitations of the insurance policy is essential. Our core research center, CipherLab, regularly checks, updates, and studies the latest encryption security technologies to ensure our services are secure and reliable.
Recently, CipherBC has launched “CipherBC Flexify” mobile version of its enterprise-grade MPC Wallet at an affordable price. Leveraging the latest MPC-CMP technology and customized features, we provide flexible, convenient, and secure asset custody services for all businesses.