Why is Crypto Custody So Important?
Published Jan 25, 2023
By Qredo Team

Why Is Crypto Custody So Important?

The road to understanding just how important custody is in the world of crypto has been a long and painful one. 

Since the birth of blockchain technology, the question of crypto custody has related not to the digital assets themselves, which exist on the blockchain, but rather to the private keys needed to access them. 

If a private key is lost, the assets which it unlocked will remain immutably on the blockchain, forever inaccessible. Fortunes have been won and lost on the twists of fate attending particular private keys. A multiplicity of methods for storing these have been attempted, from slips of paper cut into parts and held in separate safe deposit boxes, to crypto custodian vaults in bunkers under armed guard deep inside the Swiss mountains.

Giving CEXs direct custody of funds is going out of style fast

There’s nothing like the collapse of the second largest cryptocurrency exchange in the world mired in scandal to focus investors’ minds. 

The consequent monster bank run we’ve seen on funds held on other centralized exchanges is the natural result of the concerns this catastrophe fueled, with over $20 billion seen in withdrawals from CEXs across the weeks following FTX’s bankruptcy. 

Former FTX CEO Sam Bankman-Fried faces charges of having allowed substantial commingling of funds held in custody with funds used in active investments, and other centralized exchanges have since been under enhanced scrutiny concerning the commingling of funds.

Renewed industry focus on crypto custodians

Analysts at Bernstein were recently reported as estimating that the crypto custodian industry will grow from $300 million today to around $8 billion within a decade, citing it as “the foundational enabler for institutional adoption” in a recent CoinDesk report.

Amidst the shake-up, centralized exchanges are moving towards both enhanced transparency with regard to proof-of-reserves, as well as more clearly defined cold custody offerings of their own.

Self-custody of crypto comes with its own pitfalls

Binance CEO Changpeng Zhao recently remarked in a Twitter Space that “99% of people today…to hold crypto on their own…will end up losing it”. 

Of course, CZ has a point - there are risks when it comes to protecting your own private keys, which can be lost, stolen, or exposed to third parties. 

Nonetheless, the principle of self-custody remains a vital one. The ability for investors to have custody of their own digital assets without the need to entrust these to any third party is a core value, and one which is very much interrelated with the decentralization of finance enabled by blockchain technology itself.

The Qredo vision for crypto custody

At Qredo we believe that you should be able to have direct custody of your own assets, without any third party having control, and without any kind of security risk or single point of failure being present. 

We also believe that a robust and mature provision which solves this is critical to support the continued growth of the blockchain sector, and to help institutions to enter into it with agility and with true confidence.

Qredo’s solution: Decentralized self-custody

Custodians may very well be on the rise in crypto, just as Bernstein predicts. They may also be smartening up their standards under the increased attention they’ve received since the fall of FTX.

But what if there was a way to preserve all of the benefits of self-custody, without the risk of exposing or losing track of private keys?

Qredo is proud to have developed our own unique solution addressing this challenge, known as decentralized multi-party computation (dMPC)

Using our Web3 Wallets powered by dMPC, users and teams are able to fully maintain self-custody over their digital assets without the security risks and scaling issues inherent within existing self-custody solutions such as cold wallets.

The computation needed to gain access to a Qredo Web3 Wallet is distributed across the Qredo network in such a way that no private key ever needs to be held by any one of your team. This of course eliminates the risk of team members losing private keys, sharing them inadvertently, or of anyone losing or damaging a physical cold wallet. 

Within our Web3 Wallets, it is also possible to set policies which govern and define in detail which individuals within an organization or team should have access to and authority over digital assets, with detailed customization possible in just a few clicks.

With Qredo’s revolutionary technology, the network is the vault, and you can truly have the best of both worlds when it comes to crypto custody - holding on to all the benefits of self-custody of digital assets, yet with none of their potential downsides.

If you don’t have a Qredo Web3 Wallet already, you can join the growing list of institutions operating on the Qredo network right now - we’ll be glad to support you with the most secure solutions yet devised for crypto custody.

Open a Qredo Wallet