Crypto Custody Solutions
Crypto custody solutions involve transferring your crypto assets to a trusted third party for secure storage. These third party providers are responsible for safeguarding your cryptocurrency in return for a fee - usually a percentage of the value of your assets.
With institutional adoption of digital assets there have been a number of crypto custody solutions come to market over the last few years. And it’s important to understand that some are much better than others.
Below, I’ll be sharing the four cryptocurrency custodians I think provide the best custody solutions. But first, let’s review the types of solutions that are available to you.
Types of Crypto Custody Solutions
Self-custody is less relevant here as it obviously doesn’t involve a third party custodian, but I wanted to include it for the sake of completeness. Self-custody involves storing your own crypto assets and could either be in a hot wallet or a hardware wallet.
A hot wallet is where the private keys are stored on your physical device and can only be recovered using a seed phrase. Hot wallets are the least secure type of custody and are generally frowned upon if you’re storing large sums of cryptocurrency, given how vulnerable they can be to exploit.
A hardware wallet stores your private keys on a physical device that isn’t connected to the internet. To sign transactions in your wallet, you’ll need to connect the hardware wallet to your computer each time. Hardware wallets add a layer of security to hot wallets, making it harder for hackers to steal your crypto.
Exchange custody involves keeping your crypto assets on a third party exchange like Coinbase or Binance. This is generally not a good idea as if the exchange goes bust you could lose all of your crypto.
Warm custody or warm wallets involve storing your private keys online, but multiple trusted third parties are required to authorise transactions before they can be executed. There are two types of warm storage:
- Multisignature wallets;
- MPC-based wallets (multi-party computation);
Multisig wallets tend to be favoured by individuals as well as some third party custodians, but MPC-based wallets are far superior to multisigs. And if a third party custodian is only using a multisig to custody your assets, I’d question what you’re paying them for.
Cold storage involves storing your private keys offline, usually in an HSM (Hardware Security Module) which is stored in a secure data facility. The advantage to having your keys offline is that if they’re not on a device connected to the internet, they can’t be stolen by hackers. The downside to this is accessibility as every time you want to sign a transaction your private keys will need to be retrieved from storage.
Of course, there are some particulars involved here that you should be aware of if you’re ever using a cold storage provider, such as the security procedures involved for accessing your keys, level of encryption, disaster recovery mechanisms, etc.
Best Type of Crypto Custody Solution
My personal preference is warm storage because it offers practically the same degree of security as cold storage, but with far greater accessibility. Depending on the value of assets you’re custodying you may want to use a combination of warm and cold storage.
Best Crypto Custody Solution For Active Investors: Copper
Copper uses an MPC solution and primarily caters to institutional investors. Copper is personally one of the best products I’ve seen on the market and one of the most innovative teams in this space. Copper’s ClearLoop enables trading firms to deploy capital across 40+ exchanges, while maintaining independent custody. In other words, you can keep your assets on Copper’s custody solution and use it as collateral to trade on centralised exchanges. Which offers broad appeal to hedge funds and investment managers actively trading cryptocurrencies.
In pricing terms, Copper is also one of the more expensive custody providers and you can expect relatively high monthly minimums as well as a basis point charge on the total value of assets you keep with them.
Best Crypto Custody Solution For Small And Medium Businesses: Krayon
Krayon is a new challenger to the crypto custody solution space. Founded in 2022 by experts in Fintech and Cyber Security, it offers a complete crypto treasury management solution to crypto companies and investment firms holding digital assets. Like Copper, Krayon uses an MPC solution to provide institutional grade crypto custody, as well as additional security measures to protect users against exploits. However, unlike Copper, Krayon caters to small and medium companies and even teams.
There’s no monthly minimum for Krayon’s crypto custody solution, making it a viable option for companies with less assets under management. On top of this, its core focus is on treasury management for crypto companies and VCs. So the features built on top of its crypto custody solution, like wallet management and transaction reconciliations, make it a much better option for these types of companies.
Best Crypto Custody Solution For Institutions: Anchorage
Anchorage is a cold storage solution primarily geared towards bulge-bracket institutions. It uses HSMs and biometric authentication to secure user’s private keys. I mentioned above that one of the main downsides to cold storage is accessibility, however, Anchorage has done a great job of combatting the typical accessibility issues associated with cold storage solutions.
The most exciting thing about Anchorage is that it's the first ever federally chartered crypto bank. Meaning that it's regulated by the same agency as traditional financial services.
The biggest downside to Anchorage is that it only caters to very large institutional clients and the nature of its service infrastructure means that it lacks the scalability to provide such services to smaller companies. On top of that, there are still limitations to cold storage when it comes to DeFi, so most organisations would be better off pairing Anchorage with an MPC solution.
Those are my three favourite crypto custody solutions! If you'd like to see the full list of crypto custodians I've reviewed, you can check that out here: Best Crypto Custodians. And for those of you interested in learning more about how wallets work, you might like to read our post on How Crypto Wallets Work.