Custody Definition in Crypto

Custody means looking after someone’s digital assets by keeping control of the credentials that unlock them. Instead of moving coins into a vault, custody is about securing the private keys that let you access funds on a blockchain. The assets stay on chain, while the keys prove ownership and allow transfers. 

How crypto custody differs from traditional custody

In traditional finance, a custodian like a bank literally holds securities and keeps records for clients. With crypto, a custodian protects access rather than the assets themselves, because control comes from private keys. Losing that private key can mean losing access for good, so custody focuses on key protection.

Private keys and wallets

A wallet does not hold your coins. It stores the private keys that authorize transactions. Public keys work like an address you can share, while private keys act like a password you keep secret. Your choice of how to protect those private keys defines your custody setup. 

Main custody models

Self-custody

You hold your own private keys and make all security decisions yourself. This gives full control but also full responsibility if keys are lost or mishandled. There is no support line if you lock yourself out. 

Third-party custody

A specialized provider controls your private keys for you. This can make access and operations easier, and some providers add features like insurance. The tradeoff is control, since a custodian may freeze accounts or face operational or legal issues that affect access.

Partial or shared custody

Responsibility can be split across several parties. Common designs include multisignature arrangements that require multiple approvals, and MPC systems that split key shares among participants so no one sees the full key. These approaches reduce single points of failure and can fit teams or treasuries.)

Hot and cold storage

Custody setups rely on where and how keys are stored. Hot storage keeps keys online for quick transactions but increases exposure to hacking. Cold storage keeps keys offline, which reduces attack surface and is widely used for long-term holding and by many service providers. Hardware wallets are a typical cold solution.

Institutional context

Institutions often use regulated or qualified custodians that combine cold storage, multi-party controls, and compliance processes. These services are designed to match corporate policies and audit needs while managing private keys on behalf of clients.

Choosing a custody approach

The decision usually comes down to control and security versus convenience and access. Active traders may prefer custodial setups that integrate with platforms. Long-term holders often lean toward self-custody with robust offline storage and clear key-recovery practices.