Safeguarding Your Valuable Digital Assets: The Importance of Safe and Regulated Digital Assets Custody
With the volume and value of digital assets continuously growing exponentially, the safekeeping and custody of such valuable modern-day wealth have become imperative.
While self-custody may have its appeal—being stored and kept in a physical drive that is well within an owner’s reach and control—this practice exposes such wealth to numerous risks, as the owner becomes solely responsible for its security.
A well-covered case of a very costly pitfall of self-custody is that of James Howell, who lost 8,000 bitcoins, now supposedly worth US$784 million, after his ex-girlfriend threw away a hard drive back in 2013.
On the other hand, digital asset custodians are highly regulated entities wholly dedicated to providing secure storage and management services on behalf of asset owners. Such wealth and assets are secured by several layers of cutting-edge security protocols, as well as strict governance practices and regulatory compliance procedures.
On top of this, digital asset custody is covered by insurance contracts, thereby providing any digital asset owner with a high level of trust, confidence, and peace of mind.
Security Against Physical and Digital Threats
The security concerns and potential risks related to self-custody may far outweigh any notions of convenience and control. This involves extensive knowledge about private keys and hardware wallets, finding a secure location to safely keep any physical drive where those valuable digital assets are stored, and avoiding any momentary lapse or unforeseen gap in security or custody that can lead to the irretrievable loss of assets that are not covered by any insurance.
In contrast, digital asset custodians employ various measures to protect their clients’ assets, such as hardware security modules (HSMs) requiring multi-signature approvals, as well as offline storage of cryptocurrency private keys. Offline wallets are not connected to the internet, minimizing exposure to hacking attempts, ransomware, and other forms of cybercrime. Because of the extremely high value contained in these wallets, digital asset custodians implement rigorous physical access controls to safeguard the private keys. These measures allow custodians to qualify for insurance policies covering their assets under custody in the event of physical damage, theft, and other threats—internal or external—providing an additional layer of security.
Stability That Provides Peace of Mind
In response to growing digital asset adoption, various governments and jurisdictions have created regulatory regimes that provide oversight into how digital assets are received, stored, and utilized. For this reason, digital asset custodians must prove their capability and expertise in safeguarding their clients’ assets in an auditable and secure way while strictly complying with regulatory standards that are becoming more stringent. Regulators require custodians to have extensive risk management frameworks and adequate reserve capital to ensure that their clients’ assets are safe for the long term, as well as to prevent them from being targeted by cybercriminals or used to fund illicit activities.
As digital asset owners’ portfolios grow, it becomes increasingly harder to keep track of each asset and maintain the associated private keys under self-custody. This increases the chance of a lapse in security or another vulnerability that leads to significant loss. Digital asset custodians take on the responsibility of maintaining the private keys and monitoring the client’s holdings, giving the client peace of mind that their assets are safe while allowing convenient and secure transactions.
In today’s rapidly expanding digital asset market, security and stability are paramount for asset owners, with the assurance that their digital asset investments are well-protected. As owners continue to grow their portfolios, their digital assets are becoming too important to lose. Thus, trusting professionals and enlisting the services of a digital asset custodian becomes the sensible choice.
