Custody

What is Custody?

In crypto, custody refers to the possession and protection of the private keys that control access to digital assets. It determines who has final authority over the movement of funds.

How does Custody work?

1. Self-Custody: The user holds their own keys (e.g., using a hardware wallet). They have 100% control and 100% responsibility.
2. Third-Party Custody: A service provider holds the keys. The user must request permission from the provider to move their assets.
3. Hybrid Custody: A multisig setup where both the user and a provider must sign a transaction.
4. Custody is often summarized by the phrase: "Not your keys, not your coins."

Why does Custody matter?

The choice of custody model is the most important security decision in Web3. It balances the "sovereignty" of owning your own assets against the "convenience" and safety net of a managed service.

Key features of Custody

• Defines legal and technical ownership
• Balances security, control, and convenience
• Affects the risk of loss (hack vs. lost keys)
• Core component of financial regulations
• Differentiates "Real Crypto" from "Synthetic Assets"

Examples of Custody

• Self-custody using a Ledger hardware wallet.
• Exchange custody by keeping funds on a centralized exchange.
• Collaborative custody using a 2-of-3 multisig wallet with a security firm.