Cryptocurrency custody manages digital wallet access keys, offering investors a greater level of security


Cryptocurrencies have been a recurring theme: digital assets have emerged as a new way to invest. Since they are recorded on the blockchain, crypto assets are protected — but for companies to be truly worry-free, they need to sign up for a safe and dependable custody service.

The service is absolutely needed — and demand is set to shoot up even more. The whitepaper Capco Intelligence: Digital Assets Custody Considerations for Capital Markets Firms, authored by Capco, a global consulting company owned by the Wipro Group, reveals that the crypto asset market was worth US$2 trillion in 2022. However, by 2027, it's expected to skyrocket to US$24 trillion. And that only accounts for crypto; think about what it would be if we considered the whole spectrum of digital assets. 

What is cryptocurrency custody?  

Even though the blockchain provides a high level of security — given that all transactions are recorded —, it's important to safeguard access to a company’s digital assets.

Custody oversees the private keys that grant access to digital assets. This way, only authorized company staff can carry out transfers, withdrawals, and deposits. 

At Parfin, digital asset custody includes 7 layers of security and brings together the following technologies: 

  1. Multi-Party Computation (MPC) 

  1. Secure Enclave Computing 

  1. HSM (Hardware Security Module) 

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At Parfin, security is the top priority. For this reason, our solution has a mobile-based transaction approval system, cryptographically linked to the entire platform. It also boasts a range of features, like access to decentralized finance (DeFi) via native integration with MetaMask Institutional, multi-blockchain support for major blockchains, and native connection to the
Parchain network and all the remaining Parfin tools.

With Parfin’s service, clients can hold multiple types of digital assets and even set up different digital wallets for each end client, making it easier to identify deposits and transactions. 

Why is cryptocurrency custody important?  

Custody makes digital asset management safe — it's an essential service for institutional investors and might also be relevant for retail investors (read more below).

"Institutional custody solutions are getting increasingly advanced, adopting state-of-the-art technologies like MPC," says Rahul Bobba, Product Manager at Parfin.

He points out that institutional investors must weigh several factors when deciding on cryptocurrency custody: technology, such as HSM and MPC, robust governance and compliance frameworks, operational model, regulations and licensing, and insurance coverage for Assets under Custody, among others.

Digital asset custody benefits both institutional and retail investors 

Rahul Bobba stresses that custody service is crucial for different investor profiles. "Digital asset custody is about the protection of private keys. It's important to note that whoever controls the private keys has control over the corresponding digital assets," he says. "Both retail and institutional investors have a variety of options to safeguard their private keys."

According to him, retail investors may opt for self-custody, keeping their own private keys, or hand over this protection to an institution. Both choices come with pros and cons. "Self-custody wallets give users full control over their funds but bring about the extra responsibility of safeguarding the private key," Bobba clarifies. "Conversely, entrusting the task to an exchange, for instance, is more convenient. Yet it’s not without dangers, like dreaded hacking incidents or the counterparty going bankrupt."

Institutional investors, who tend to hold large quantities of digital assets, may either go with a custodian or take on custody with the help of infrastructure providers. "It's crucial to underline that institutional investors need to think about several complex aspects related to private key protection, apart from safety. This encompasses jurisdictional regulation, compliance, process governance, and operational model whether they're securing their own funds (e.g., hedge funds) or end-user funds (e.g., exchanges)," warns Bobba.

Want to learn more about cryptocurrency custody? Reach out to Parfin’s experts!