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Cryptocurrency Custody Services vs. DIY Storage

November 05, 2021

Cryptocurrency Custody Services vs. DIY Storage

As cryptocurrency adoption continues to increase, the need for secure storage solutions has become more crucial than ever. If you own any amount of cryptocurrency, you need to store them securely to protect your investment from theft, hacks, or other forms of loss.

When it comes to cryptocurrency storage, you have two options: using a custodial service or handling it yourself. In this blog post, we’ll compare the pros and cons of these two methods and help you determine which one fits your needs best.

Custodial Services

Custodial services are third-party companies that offer secure storage solutions for cryptocurrency. These services are typically used by institutions, funds, or high net worth individuals.

Pros

Security - Custodial services provide a higher level of security than DIY storage methods. These companies usually employ multiple layers of security to protect their clients’ assets, including physical and digital security measures, insurance, and cold storage.

Convenience - Depending on the custodial service you choose, you can access your cryptocurrency using a web or mobile app, which makes it easy to buy, sell, or transfer your assets at any time.

Regulatory Compliance - Custodial services must comply with various regulatory requirements, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) rules. This ensures that your assets are being stored safely and legally.

Cons

Fees - Custodial services typically charge a fee for their services, which can range from 0.1% to 2% of your total assets under management. This can be expensive for some investors, especially those with smaller portfolios.

Third-party Risk - By using a custodial service, you are placing your trust in a third-party company to manage your assets. While reputable custodial services have a good track record of protecting their clients’ assets, there is always a risk of fraud or other malfeasance.

DIY Storage

DIY storage refers to the practice of storing your cryptocurrency yourself, usually in a digital or hardware wallet.

Pros

Control - With DIY storage, you have full control over your cryptocurrency assets. You manage your private keys, so you have complete ownership and control of your funds.

No Fees - You don’t have to pay any fees to store your cryptocurrency yourself. This can be a big advantage for investors who are just starting and have smaller portfolios.

Privacy - By not using a custodial service, you reduce the amount of personally identifiable information that you share. This may be desirable for those who prioritize privacy.

Cons

Security - DIY storage is more vulnerable to loss or theft than custodial services. If you lose your private keys or your hardware wallet malfunctions, you may lose your assets permanently.

Expertise Required - Managing your own cryptocurrency portfolio requires some level of technical knowledge. You need to know how to create and manage a digital or hardware wallet, set up backups, and update your software to ensure maximum security.

No Regulation - By managing your own cryptocurrency assets, you are not subject to any regulatory compliance. This means that you must take full responsibility for ensuring that your assets are stored securely and legally.

Conclusion

Both custodial services and DIY storage have their pros and cons. In general, custodial services are best for institutional or high net worth investors who need the highest level of security and convenience. DIY storage is best for smaller investors who prioritize control and low fees.

Ultimately, the best storage solution for you will depend on your individual needs and circumstances. Whichever option you choose, make sure that you take all necessary precautions to protect your assets from loss or theft.

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