Custody Definition
In the realm of blockchain and cryptocurrency, custody refers to the safekeeping and management of digital assets. A fiduciary or specialized entity such as a custodian bank often manages this process. Their duties typically include maintaining the asset’s security, executing transactions on behalf of the owner, and generally ensuring the owner’s property’s safety.
Custody Key Points
- Custody involves the safekeeping, management, and transaction execution of digital assets.
- A fiduciary or similar entity often manages the custody process.
- The main purpose behind custody is ensuring the security and safety of an owner’s digital assets.
What is Custody?
Custody in the context of blockchain and crypto is an entire business model dedicated to the protection of digital assets. Given the value and nature of crypto assets, their safekeeping has become a significant focus for many entities, most notably financial institutions, and individuals involved in cryptocurrencies.
Who uses Custody?
Almost anyone involved in blockchain or cryptocurrencies uses custody, from individual investors to entities handling large digital assets such as banks, hedge funds, or corporations. The need for a secure system to handle assets is paramount to ensuring investment safety and value.
Where is Custody used?
Custody is used worldwide, wherever cryptocurrencies and digital assets are held or transacted. It has especially seen significant uptake in countries with a strong focus on digital financial technology, such as Japan, South Korea, and the United States.
When is Custody used?
Custody is generally used whenever a digital asset is owned, be it a transaction or simply storing assets for the long term. It’s particularly crucial in times of increased market volatility, where the value of the assets could be significantly impacted.
Why is Custody important?
Custody is important because, in the digital asset world, the saying “possession is nine-tenths of the law” takes on a new level of importance. If someone gains access to a person’s digital key, they essentially have ownership of those assets. Therefore, having a secure and competent custodian of these keys and assets is essential to prevent loss through theft or mismanagement.
How does Custody work?
In its simplest form, digital asset custody works much like a safety deposit box at a traditional bank. The custodian, such as a specialized blockchain company or a financial institution, keeps hold of the asset owner’s private keys and is responsible for ensuring that these are kept safe. They may also handle performing transactions on the behalf of the owner, making sure that these transactions are executed correctly and securely.
