Digital custody stands for the preservation of digital assets. Digital custody goes very broad, because it includes different methods of preserving and protecting digital assets for you as the owner.
You can certainly compare digital custody to a large extent with the custody of classic financial assets.
Differences between digital custody and regular asset custody
We must note that there are quite a few differences between digital custody and classic custody because cryptocurrencies and other digital assets have their own characteristics.
Since cryptocurrencies only exist on the blockchain, secure custody is even more important than for classical currencies because you can literally put physical assets in a safe.
Your crypto is stored in a decentralized network called the blockchain. All transactions take place on the blockchain. The transactions themselves are also the documentation or proof that a transaction has taken place.
As a digital asset owner, you mainly guard and store your own keys. You use these for a transfer to another owner or for a purchase.
In fact, you don’t keep the digital assets yourself, but you have a set of digital keys. You must protect these digital keys to maintain ownership.
If someone else uses the keys, you cannot prove that the assets were originally yours.
Self custody vs using a professional custodian
As we have seen, digital custody stands for the preservation of your digital assets. Now, there are many ways to do this.
Do you just write your private keys on a piece of paper that you keep in a safe? Or do you store your private key on your computer?
The choice is yours, of course, but you would do well to look for professional tools to keep your private keys safe as well.
If desired, you can also use the services of professional custodians but that would be the same as using a bank. And always remember: not your keys, not your crypto.
A digital inheritance plan as a form of digital custody
Digital custody differs significantly from the “classic” custody that banks do for you. Think about what will happen to your crypto in case you die.
Will your personal computer simply be lost or go to the recycling park? Then your descendants could be missing out on a lot of money.
A digital inheritance plan can help with this.
An important factor for banks and institutions to adopt crypto
Good systems of digital custody and protection are important for crypto to gain acceptance in the classical financial world.
If institutional investors want to use crypto, they must first be well convinced that they can keep their crypto safe and that it is not just a toy of hackers and nerds.
What exactly do you have to protect?
A digital wallet is what you use to access your crypto. You can only “open” your digital wallet by making use of your private key.
The management and protection of your private keys is thus the “key concept” of digital custody.
You can also expand this same concept of digital custody to protect passwords and usernames for all your other online accounts.