Learn the essentials of crypto custody, private keys, and how to choose between self-custody and third-party custody solutions.
In the world of cryptocurrency, custody is one of the most important factors that determine the safety of your funds. Let’s say you have something valuable, like a stack of cash, and you need to store it somewhere safe. You could hide it at home, in a safe or under your bed. After all, that’s where the term “mattress money” comes from. Or, you can store it with an institution you trust, like a bank.
Custody is a core concept that every investor must understand, and it’s why the U.S. Securities and Exchange Commission (SEC) issued an Investor Bulletin that emphasizes the need for everyday investors to familiarize themselves with “Crypto Asset Custody Basics”. Their guide provides an insightful summary of the different forms of crypto custody, and we encourage you to give it a read.
Whether you are a seasoned trader or a first-time buyer, choosing the right method to store your crypto is the difference between having complete control and facing permanent loss.
What is crypto custody?
Crypto custody refers to the method you use to store your crypto. Unlike physical assets, digital assets aren’t stored in bank vaults or personal safes. Instead, they are permanently stored on the blockchain.
Now, it may surprise you to learn that digital assets aren’t stored in crypto wallets. Despite the name, crypto wallets actually store a set of private keys that serves as a digital signature. The private key is what actually grants you access to your crypto. If you lose the private key, you lose access to your digital assets.
Types of crypto custody
There are two main types of crypto custody that you can choose from. Each has its benefits, but ultimately, the decision comes down to whether you want to manage your own crypto assets or entrust it to a third party.
Self-custody
With self-custody, you are the only person with the private keys, which means you have full control over your digital assets. However, this also means that you are ultimately responsible for keeping your private keys safe, secure, and accessible.
Losing or misplacing your private keys means you’ll permanently lose access to your crypto. There is no “Forgot Password” button, no customer support line you can reach. Per the SEC bulletin, maintaining a self-custody wallet may require some technical savvy. You will also need to be particularly careful to prevent your private keys from being stolen by bad actors.
With full control comes full responsibility, so oftentimes, people who are less technically inclined or prefer a more convenient custody method may choose other solutions.
Third-party custody
With third-party custody, you entrust your digital assets to a third-party institution. This is where an exchange like Binance.US comes in. Like any other online platform, you log in with a username and password, and we handle the heavy lifting of securing the private keys behind the scenes.
It’s essential to choose a trustworthy, reputable platform to store your crypto. As history indicates, third-party institutions are not immune to failing, facing security breaches, or going bankrupt. Always do your own research before selecting a third-party platform.
How Binance.US protects customer assets
The SEC’s recent bulletin encourages people to ask key questions when selecting third-party custodians. We agree that custody is one of the most important decisions you can make when participating in the world of digital assets, and we appreciate the SEC’s attention to this topic.
At Binance.US, we’ve built our platform to answer these questions with transparency. Here are some important attributes to consider when choosing a cryptocurrency exchange.
- Regulatory standing: Is the platform subject to regulatory oversight? Binance.US is a licensed and regulated U.S. crypto platform registered with Financial Crimes Enforcement Network (FinCEN) as a money services business.
- Reserves: Does the platform maintain 1:1 reserves? Binance.US is a 1:1 backed, full reserve platform, which means your assets are always yours and available for withdrawal when you need it. We do not lend or trade your assets without your permission.
- Privacy protections: Verify whether the platform protects your personal information or sells any customer data to third-parties. Binance.US meets ISO exam requirements, which are voluntary certifications of strict controls to ensure the security, confidentiality, processing integrity, availability, and privacy of all customer data on our platform.
- Asset selection: Does the platform you’re evaluating support the digital assets you want to hold? Binance.US supports 190+ assets at the time of writing, including many of the world’s most popular cryptocurrencies.
- Fees: What kind of fees does the platform charge? Binance.US offers a transparent trading fee schedule and fees are calculated and displayed on the “Preview Purchase” screen for your review before you approve the transaction.
Third-party custody platforms can offer additional protections over self-custody solutions as well. For example, Binance.US performs real-time monitoring throughout the lifetime of customer accounts, analyzing deposit, withdrawal, login activity, and more for signs of suspicious or abnormal activity. This offers a layer of active defense that self-custody solutions cannot provide. Finally, being able to reach live customer support can prove invaluable if you’re experiencing issues accessing your funds.
Choosing a crypto custody solution
Whether you choose the full control and responsibility of self-custody or prefer to trust a professional third-party custody platform, the goal remains the same: ensuring your digital assets remain securely stored yet accessible when you need it.
You can learn more about Binance.US’ security and compliance features, or create your free account to securely start your crypto journey.