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Bitcoin Custody

What Is Bitcoin Custody?

What Is Bitcoin Custody?

Bitcoin custody refers to control over the private keys associated with a particular bitcoin address or wallet. There are three main types of Bitcoin custody: self-custody, joint custody, and third-party custody. Each method comes with its own set of advantages and disadvantages.

Given the importance of private keys, it’s important to understand the different types of custody before deciding how to store your bitcoin.

Self Custody

With self custody, you are the only one who has control over your private keys. It gives you complete control over your bitcoin but also comes with the greatest amount of responsibility. You are responsible for ensuring that your keys are properly secured. If you lose your private keys or if they are stolen, there is no way to recover your bitcoin.

Self custody can be custody of a single private key or multiple private keys in a multisig key arrangement. As long as you control all of the private keys for a wallet or bitcoin address, you are using a self-custody key management setup. Most wallets default to a single sig wallet, you can also use multisig wallets and custody all of the keys.

Joint Custody

Joint custody involves using multisig to split control of private keys between multiple entities (people, businesses, or even software) to share control over the private keys associated with a particular BTC address or wallet. This can be helpful in terms of security, as it reduces the likelihood that all private keys will be lost or stolen at once. However, it is important to trust the other parties involved and to have a plan in place for what happens if there is a disagreement about how to use the bitcoin.

For example, you could set up a 2-of-3 multi-sig address with your spouse and a third party such as a trusted friend or family member. This would allow all three of you to jointly control the funds in the address, but it would only require two out of the three signatures in order to spend any of the bitcoin.

One of the most popular services that provides joint-custody of your bitcoin is Nunchuk. They offer the convenience of keeping your bitcoin safe by helping you to set up a wallet with private keys that are stored across multiple devices to prevent the risk of loss or theft.

Third-Party Custody

Third-party custody refers to entrusting private keys to a custodian, such as a centralized bitcoin exchange, bitcoin bank, or wallet service. This option may be convenient for some but comes with the price of privacy, control, and the potential loss of your bitcoin if the custodian is ever hacked, seized by the government, or the custodian decides to steal your bitcoin.

One of the most popular services that provides third-party custody of your bitcoin is Cash App. They offer a complete suite of bitcoin tools such as the ability to buy/sell, send on-chain and on lightning, as well as a completely custodial wallet.

Which Option is Right for You?

Deciding which method of storing your private keys should come down to a question of trust. If you don’t want to entrust your private keys to anyone else, then self-custody is the way to go. If you would like to decentralize your risk, then using multisig for joint control of private keys could be best suited for you. Finally, if you’re willing to trade some privacy and security for convenience, then third-party custodial might be the right choice for you.