What is digital asset custody

The term “digital asset custody” encompasses a wide range of methods of storing, managing, and safeguarding digital assets on behalf of asset holders – owned by both individual and institutional investors. 

Storing digital assets in custody platforms resembles the age-old methods of storing physical assets in traditional financial institutions. 

Still, storing assets in the custody platform is different because the asset involved in the transaction is different, viz. Crypto-asset and works over a blockchain network – that manages the immutable ledger of ownership. 

Under the digital asset custodian platform, owners are issued cryptographic private keys that help them prove their ownership of the assets as well as sign transactions. 

If the owners lose the private keys, they lose access to their funds as well because the assets are unrecoverable without proof of ownership.

Adoption Barrier

According to industry research, the biggest barrier that is preventing both institutional and individual investors from joining the ever-growing digital asset market in greater numbers is uncertainty surrounding the legal and regulatory framework as well as the qualified digital asset custodian. The following section discusses the benefits and limitations of the digital asset custodian platform.

Pros and Cons of digital asset custodian platform.

The pros of digital asset custodian platform.

Simple Key management.

  • Most institutional and private investors struggle with private key management and security issues. 
  • The digital asset custodian platform is built to track and maintain private keys for investors.
  • As investor holdings expand, efficiently managing holding across varying web 3.0 ecosystems becomes even more difficult over time. 
  • The complexity of managing private keys increases as holdings span across different digital asset types and more frequent transactions are conducted via digital asset custodian platforms. 

Usability and efficiency

  • Storing crypto/ digital assets in a custody platform with a functional user interface allows investors to get their job done in less time. 
  • The digital asset custodian platform is built to help investors achieve improved operational efficiency. 
  • With a digital asset custodian platform, investors need to direct less effort towards the active management of their diverse portfolio of digital assets.

User safety and security

  • Cyber-attack is among the biggest threat posed to your digital assets in the custody platform. 
  • The digital asset custodian platforms are shipped with all resources required to provide cyber protection against serious security flaws.

Lower risks

  • There are digital asset custodian platforms that hold a legal license from the government authorities.
  • The legal license allows the digital asset custodian platform to provide an additional layer of trust to investors in conjunction with advanced security measures.
  • The legal license help ensures that the digital asset custodian platform protects investors’ interest in the case of theft, loss of funds, and unauthorised access.

The limitations/cons of digital asset custodian platform.

Speed and Security

  • When it comes to digital asset custodian platforms, both speed and security can’t be achieved parallelly. 
  • Traders looking to derive profits out of trades are not going to prefer cold storage as their primary digital asset custodian solution. Storing digital assets in a custody platform that is based on a Cold storage system might work for long-term institutional investors but is inadequate for traders. 
  • Cold wallet-based digital asset custodian platforms help ensure the security of the funds over the speed of trades. On average, the investor needs 24-48 hours to transfer assets using cold wallets. 
  • On the other hand, a hot wallet-based digital asset custodian platform provides speed but often leads to security breaches.

Operational efficiency

  • Opting for a cold storage-based digital asset custodian platform often leads to slower processes and is considered to be highly error-prone. 
  • The rigidity and friction make it harder to scale processes and change with business demand, as well as a result in higher transaction costs.
  • Higher costs and higher inefficiency eventually lead to poor business throughput. Storing digital assets in a custody platform that is flexible and scalable – is critical to meet the ever-evolving need of institutional and individual investors. 

Non-custodial platforms

“Not your keys, not your digital asset” – this is among the most used phrases in the crypto-community. 

Digital assets enable people with the ability to own a piece of digital information that is considered valuable and can be traded across the globe.

But, if, as an investor, you let a digital asset custodian platform store the valuable piece of information on your behalf, then you don’t really own it, in fact, you can lose access to your investments at any moment. 

Losing millions and billions of dollars worth of investments due to the mistake or carelessness of some third-party provider might result in catastrophic consequences for your organisation.    

So, it is highly suggested by experts – to store your digital assets in a custody platform where only you have full control over the storage and management of private keys. 

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