When you want to buy bitcoin, taking measures to protect it cannot be overemphasized. Severely, investors have lost their investment not because the bitcoin blockchain is not secure, but because they did not securely store their private key or password.
If you are looking at investing in crypto, but you are worried about your security, then it’s time you consider a cryptocurrencies custody solution. Cryptocurrency custody solution is all about securing your crypto assets from thefts. This article will enlighten you on what you need to know about cryptocurrency custody solutions for investors who want to buy bitcoin or any other cryptocurrency.
What is cryptocurrency custody?
Custodians have been around for a while now, and they are all about securing your valuable assets, be it money, gold, including cryptocurrencies. A cryptocurrency custody solution can help you store your private key.
Private keys are similar to passwords and are used to prove ownership of a blockchain address, but they are not the easiest to remember. If anyone has access to your wallet’s private key, they have access to your entire crypto wallet and can do with it as they please. For this reason, you must take the necessary measures to safeguard your private key.
Saving your private key online is susceptible to hacks, and saving it offline, like on a piece of paper or hard disk, may likely lose it. A crypto custody solution is the best way to mitigate the challenges of safely storing your cryptocurrency’s private keys.
Types of cryptocurrency custody?
You can be your custodian or hire a third-party custodian to safeguard your crypto assets as an investor. As such, there are two main types of cryptocurrency custody solutions you should know, and they include:
A perfect example of a self-custody solution is when you buy bitcoin and decide to personally hold the private key to your wallet.
Being a self-custodian to your wallet means you are the only one who can prove ownership of the funds. But as the saying goes, “with great power comes great responsibility” being your custodian means you bear all the risk of safeguarding it.
In other words, if you forget or misplace your private key, your cryptocurrency will most likely be gone forever.
If you do not want to take responsibility for safeguarding your private key yourself for any reason, you can always hire a third-party custodian to do it for you. Third-party custodians are registered and regulated institutions that safeguard the private keys of investors.
And the best part is that they have insurance for every wallet, so your funds will always be safe. If you are going to hire a third-party custodian, there are three different kinds you can hire, and they include:
- Digital asset managers
- Custodial banks
How do cryptocurrency custodians store investors’ private keys?
As you may have already noticed, when you buy bitcoin and hire a custodian to safeguard it, the different custodians will employ different methods. Custodians choose the following methods to keep private keys secure:
Hot storage is the process of storing digital assets online. The first thing that may come to your mind on hearing this is that it isn’t susceptible to hacking. In a way, it is, but most custodians use high-security measures to protect investors’ information. The good thing about hot storage is that you can easily access your finds.
On the other hand, cold storage is storing digital assets offline. In this case, the digital assets are saved on a drive and kept in a safe protected from electronic devices. Using this method is highly secure, and most custodians prefer to employ this method.
Investors can also buy bitcoin and secure the private key by requiring multiple approvals for any transaction on the wallet. This way, even if anyone has access to the wallet, they cannot perform any transaction unless authorized. This custodian solution is ideal for multiple users having access to a decentralized wallet.
Smart contract wallet
Lastly, as an investor, when you buy bitcoin or other cryptos, you can secure the private key using a private contract. This custodian security solution is ideal for securing smart contract tokens.
Also, owning a smart contract wallet comes with other perks like a private key, control by code, and a master account, amongst other exciting details.