One of the primary differences between cryptoassets and other investments is how they remain at all times in the custody of their owners. On the one hand, self-custody offers many benefits to the investor: There is no need to operate within business hours, depend on third-party service providers, or worry about institutional or government intervention. On the other, this puts a greater degree of responsibility into the hands of the investor.
Each member of a blockchain network - including regular crypto users, investors, and companies - can be identified using cryptographic addresses, referred to as public keys. These public keys, together with each user's "private" key - which is used to unlock the coins or tokens sent to the private key - are stored on something called a wallet.
There are two main types of cryptocurrency wallets: software wallets and self-custody. Software wallets generally store keys using secure cloud-based strategies, maintained by third-party providers (ie. Fireblocks). Self-custody solutions involve users keeping keys on a hardware device or piece of paper that they keep in their own home or in a bank vault. Build Your Custody Strategy
As a high-net-worth individual, you will find many of the strategies utilized by retail investors to be inadequate for your needs. First, you are likely interested in longer-term custody. Second, your portfolio may be quite diverse, and as a result, complicated to manage all in one place. Third, your portfolio may be managed by multiple stakeholders, and you likely have multi-generational family obligations. Ultimately, writing your private keys on a post-it note and hiding it in your desk is not for you. You need to build your own custom cryptocurrency strategy that takes advantage of multiple storage solutions and that includes more complicated governance structures. Types of Wallets and Custody
- Exchange wallets: It is possible to hold tokens on most cryptocurrency exchanges. With these solutions, the private keys are stored by the exchange. This option is usually ideal for short-to-mid-term custody.
- Cloud-based wallets: There exist a number of highly reliable crypto custody platforms that manage private keys for clients. Our partner Fireblocks is one such solution, splitting and storing keys on multiple clouds and behind hardware security modules - the very same custody used by major EMIs like Revolut, Wise, and Monzo. All AlterCap users get free access to this solution.
- Hardware wallets: There are times when investors prefer to store crypto on their own premises. Hardware wallets provide an easy solution in these situations, enabling transfers to be validated while ensuring private keys can be stored in secure locations, including bank vaults and behind HSMs.
We recommend that your crypto custody governance structures resemble those which you have established for other investments. In particular, multi-signature wallets should be set up that require the approval of particular individuals prior to operations. Our team would be happy to walk you through this process. Ensure a Last Line of Defense
Technology has progressed to a very large extent over the last few years, and with proper strategy, security of funds can be just about assured. However, just as governments insure bank accounts, a last line of defense is certainly worthwhile for cryptocurrency wallets. Fortunately, insurance policies that protect digital assets are currently offered by a number of leading providers. We always recommend Coincover, underwritten by Lloyd's of London, and can help to arrange coverage up to $1,000,000 for your digital assets.