As Bitcoin is gaining more supporters and investors, it’s equally important to finding storage solutions to keep the funds safe. Of course, you need a safe Bitcoin wallet, but a lot of investors consider investing in cold storage solutions. If you’re wondering what custody solutions are for BTC and why you might need one, keep reading. In this article, we cover everything you need to know about custody solutions for Bitcoin.
What Are Crypto Custody Solutions?
Custody solutions are storage and security systems that are independent and are designed for safeguarding a large quantity of BTC or other cryptocurrencies. This is a modern and innovative solution that is predominantly used by institutional investors, crypto trust funds, hedge funds that have made large BTC investments, for example.
Bitcoin wallets are also a safe solution. However, they do have vulnerabilities, depending on the format of wallets. For example, online wallets are the most convenient choice for online trading because you can access your wallet from any browser and device.
However, your funds essentially, including your private, public keys, are stored on a server that is under the control of the provider, or in other words, you don’t have complete control of your sensitive data and funds.
If you pick a trustworthy and secure provider, this will mitigate most problems but, it’s still advisable to further protect, store your BTC with a cold storage option. For example, you can easily trade on a trading site with your web wallet and back up your BTC with a hardware wallet (cold wallet). This is great if you want to keep trading and store part of your BTC as a long-term investment.
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So basically, if you own a hot wallet, it’s still important to back up your funds with a cold storage option. As you know, hot wallets are connected to the internet, mobile, web, and desktop wallets, but a cold storage option is a hardware wallet, paper wallet, and even sound wallets that don’t need an internet connection.
How Do Custody Solutions Work?
Similarly, there are custody solutions that combine hot and cold storage options. They also encompass private and public keys, but the provider further offers security services. More specifically, there are service level agreements that explain in detail the conditions and management of the storage and funds by the provider.
Hot storage options are connected to the internet, as opposed to the cold storage option that doesn’t have an online connection.
But, hot storage makes trading more accessible because you’re online, while cold storage, as your funds are offline, is a bit more challenging to quickly respond to market developments and trade online. Overall, the main purpose of cryptocurrency custody solutions is to keep your assets safe. Again, you need to carry out due diligence and find a provider and solution that works for your needs.
This doesn’t mean that Bitcoin wallets are an unsafe option, but crypto custody solutions are best suited for large BTC investments. This is especially a good idea if you’re an accredited institutional investor or looking to expand your crypto holdings. Either way, you still would need to compare different options and pick one that is suitable for your financial plan and goals.