How Digital Asset & Crypto Custodians Safeguard Your Assets

In today's digital age, where cryptocurrencies and other digital assets have become increasingly prevalent options for investment and wealth generation, ensuring the security of these assets is paramount. Many investors turn to qualified digital asset & crypto custodians — trusted entities tasked with safeguarding and managing these assets on behalf of their clients — to safeguard their digital assets by storing the cryptographic keys that provide access to the assets.  

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The two types of keys: Private and Public keys

Private keys

Private keys are essentially the key to accessing and controlling your digital assets. It is a unique, secret code that should always be kept confidential to prevent unauthorized access to your assets. With your private keys, you can sign transactions to send or transfer your digital assets securely.  

Public keys

Public keys are derived from your private key and are used to receive digital asset transactions. It is used to receive digital asset transactions and verify digital signatures generated by your private key during transactions. Unlike private keys, public keys can and are intended to be shared with others, allowing you to receive digital assets from counterparties securely.  

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What exactly do crypto custodians do to protect these keys?

Safeguarding public and private keys

Digital asset and crypto custodians play a crucial role in safeguarding these private keys, and this integral role requires deep technical knowledge and expertise in order to ensure the highest level of asset security for the clients.  

They employ state-of-the-art encryption techniques to shield private keys from unauthorized access. Additionally, crypto custodians utilize advanced security protocols and technologies such as MPC-CMP technology to decentralize the private key, ensuring that no single party has access to the complete key. Furthermore, custodians implement multi-factor authentication and password-less authentication to secure user accounts from unauthorized access. By combining these security measures, customers can rest assured that all important operations are authenticated for additional layers of protection and can enjoy a more seamless and convenient experience.  

Leverage cold and warm wallet solutions

As the keys are securely stored in a wallet, custodians leverage cold and warm wallet solutions to maintain an optimal balance between operational efficiency, flexibility and safety. Cold wallets involves keeping the keys offline in a secure environment, disconnected from the internet and thereby minimizing the risk of unauthorized access and providing an additional barrier against potential security breaches. On the other hand, warm wallet technology maintains a certain portion of digital assets online, allowing for faster access and transactions while still implementing stringent security measures to protect against cyber threats. By optimising the utilisation of both cold and warm wallet solutions, digital asset and crypto custodians can strike a balance between security and accessibility, ensuring that clients’ digital assets remain protected while also allowing for efficient management and utilization.  

Implementing compliance controls and audits  

In addition to robust security measures, custodians also employ rigorous internal controls and regular security audits, including SOC 2 Type 2 attestation, to ensure compliance with regulatory standards and to detect any potential security vulnerabilities. These internal controls may include segregation of duties, regular security training for employees, and strict access controls to limit unauthorized access to sensitive information. Furthermore, custodians prioritize compliance with Know-Your-Customer (KYC), Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations, implementing thorough protocols to mitigate the risk of illicit activities and maintain the integrity of their services.  

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Overall, digital asset and crypto custodians play a vital role in safeguarding digital assets by implementing a combination of advanced encryption techniques, security protocols, and internal controls. By leveraging these measures, custodians can provide clients with a secure and reliable platform for managing their digital assets, ensuring peace of mind and protection against potential security threats.