https://docs.google.com/document/d/1EJoS7RtDnP4nF0SS0u5-_c0Fdaer43hLWclC3K5--54/edit#heading=h.k4cj0sqqrowa
When FTX collapsed last year, the fallout wasn’t just restricted to FTX users: companies like Galois Capital and Genesis Trading that had chosen to custody their digital assets on the exchange (partly for convenience) also reported losses in the tens of millions and had to issue mea culpas to their investors. Here was yet another example of how choosing the wrong custody solution meant both financial disaster and reputational damage.
For crypto companies, finding a safe and secure place to custody digital assets is a high-stakes, challenging decision. Operators have to balance convenience and security, liquidity and accessibility, and often end up with overly complicated setups that are hard to use, or simpler setups that are monumentally insecure. And given that the industry is still very much in flux, guidelines and best practices are not well understood.
In this blog post, we try to remedy this by breaking down your various options, from custodial to non-custodial wallets and providing guidance on how to choose the best solution no matter your company’s structure.
Digital assets are always stored in digital wallets, of which there are roughly two kinds: custodial and non-custodial. The main difference between them is who controls the private key. For custodial wallets, a third-party provider such as Coinbase manages the private key for you. This means a more familiar UX for customers: to access your funds, you just log in with a username and password. For non-custodial wallets, you have to keep track of your own private key and recovery phrases.
Overall, non-custodial wallets provide more control over your assets, allowing you to manage the wallet directly and integrate with financial or accounting services without having to go through your custodial wallet provider. They are also often more secure, depending on how you manage your keys. However, that comes at the cost of ease of use: it can be slower to make transactions with a non-custodial wallet, and if you mismanage your keys, you don’t have any fallbacks.
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