FACT WIKI · Concept
Cryptocurrency custody
Cryptocurrency custody
In custodial cryptocurrency storage, a third party controls the private keys on the user's behalf.
How it works
Multiparty computation, or MPC, splits key material across parties or systems so they can sign transactions collaboratively without reconstructing the full private key in one location. Such systems can support time delays and multiple-approver workflows.
At a centralized exchange, a cryptocurrency withdrawal request triggers compliance checks, risk controls and wallet operations. Once approved, the exchange signs and broadcasts a blockchain transaction from its custody infrastructure to the user's destination address.
Multisignature arrangements require multiple approvals to move funds. They can separate signing responsibilities in corporate governance and decentralized autonomous organization treasuries.
Scope and limitations
Hot versus cold storage describes connectivity, while custodial versus non-custodial storage describes who controls the keys. These are separate dimensions of a wallet's design.
Background and related concepts
Custody creates counterparty risk: a provider's hacking incident, insolvency or legal restrictions can affect a user's access to funds even though the user holds an account claim.
References
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