What does a custodian do?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A custodian holds crypto private keys on a client's behalf. That hands key management to a professional set-up, but it also means giving up the ability to move the assets yourself. What happens in an insolvency or an insider incident depends on the custodian's legal status and how client assets are segregated.
Key points
- A business that holds clients' private keys
- You give up the ability to move funds yourself
- Segregation and legal status decide what happens in insolvency
- Withdrawals usually require approvals and carry limits
Definition
A business that takes custody of clients' private keys and manages storage, signing and withdrawals, generally subject to licensing and asset-segregation requirements.
Key management is unforgiving: lose a key and nothing recovers it, leak one and the funds go immediately. Custodians combine physically isolated cold storage, multi-person approval and key splitting via multisig or MPC so that no single employee can move assets alone.
For the client, this trades control for convenience. Withdrawals require a request and approvals, so funds do not move instantly. If the provider ceases operations, whether you can reach your assets depends on the contract and the legal regime — which makes segregation of client assets from the firm's own a key thing to verify.
Japan requires crypto exchange operators to segregate customer assets, and other jurisdictions impose comparable rules. The substance of those rules differs by country, though, so the protection you get depends on where your custodian is licensed and for what. These frameworks change, so check primary sources.
Watch out for
- · While in custody, you cannot move the assets on your own decision
- · Insurance, where it exists, has scope and caps that vary by contract
- · Check segregation practices and what the jurisdiction actually protects