Custody refers to the safekeeping of assets by a trusted third party, typically a financial institution.
In the context of cryptocurrency, custody refers to the secure storage of digital assets, such as Bitcoin or Ethereum, by a custodian on behalf of an investor.
Custody is essential for investors who want to ensure the security of their digital assets. Cryptocurrencies are often stored in digital wallets, which can be vulnerable to theft, hacking, or loss due to human error. Custodians provide a more secure and reliable way to store digital assets by implementing advanced security measures, such as multi-factor authentication, encryption, and cold storage.
Custodians are typically regulated financial institutions that specialize in custody services for digital assets. They may also offer other services, such as insurance, auditing, and reporting, to help investors manage and protect their assets.
One potential drawback of custody is that it can limit the investor's ability to access and manage their assets. For example, some custodians may require prior approval for withdrawals or transfers, which can be inconvenient for investors who need to access their assets quickly.