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 <h2 data-ct-widget="explained-block-title" id="the-importance-of-bitcoin-custody">The importance of Bitcoin custody</h2>
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 <p><em>Bitcoin is a decentralized cryptocurrency, the first of its kind, and is widely considered digital gold for its ability to store value. With industry expert predictions cheering Bitcoin prices to <a href="https://cointelegraph.com/news/spot-bitcoin-etf-approval-propel-btc-1-million-days-to-weeks-samson-mow" rel="noopener noreferrer nofollow">reach astronomical amounts</a>, users and investors must prepare and execute a good custody plan.</em></p>
 <p>Bitcoin (<a href="https://cointelegraph.com/bitcoin-price" rel="noopener noreferrer nofollow">BTC</a>) remains a hot topic of discussion with growing institutional interest and multiple <a href="https://cointelegraph.com/learn/types-of-bitcoin-etfs" rel="noopener noreferrer nofollow">spot BTC ETFs</a> approved, allowing traditional investment firms to offer <a href="https://cointelegraph.com/news/retail-investors-bitcoin-etf-vaneck" rel="noopener noreferrer nofollow">Bitcoin to their clients</a>.&nbsp;</p>
 <p>Users own Bitcoin or obtain exposure to this asset class in multiple ways, from <a href="https://cointelegraph.com/learn/bitcoin-etfs-a-beginners-guide-to-exchange-traded-funds" rel="noopener noreferrer nofollow">investing in ETFs</a> to <a href="https://cointelegraph.com/learn/trading-btc-on-crypto-exchanges-vs-bitcoin-etf" rel="noopener noreferrer nofollow">holding them via centralized exchanges</a> or exploring self-custody options either directly or via institutions or third parties.&nbsp;</p>
 <p>Individuals need to choose the right custody solution that best suits their custodial risk appetite along with their investment and regulatory profile. They broadly have the following options when it comes to holding their Bitcoin:</p> <img alt="Custody options to store Bitcoin" src="https://s3.cointelegraph.com/storage/uploads/view/de4695d8d8698782c8676280bdd746f7.jpg" title="Custody options to store Bitcoin">
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 <h2 data-ct-widget="explained-block-title" id="bitcoin-holdings-in-centralized-exchanges">Bitcoin holdings in centralized exchanges</h2>
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 <p><em>Centralized exchanges are considered a gateway into cryptocurrencies for retail investors, and it’s no surprise that some users might consider them a convenient option to hold their Bitcoin.</em></p>
 <p>Reputable <a href="https://cointelegraph.com/learn/centralized-vs-decentralized-crypto-exchanges" rel="noopener noreferrer nofollow">centralized exchanges</a> like Coinbase and Kraken operate to high standards owing to their jurisdictions and regulatory and legal compliance. Retail users drawn to cryptocurrencies tend to start their journeys by opening their first accounts on centralized exchanges.&nbsp;</p>
 <p>These institutions can onboard users after necessary <a href="https://cointelegraph.com/learn/what-is-kyc-and-why-do-crypto-exchanges-require-it" rel="noopener noreferrer nofollow">Know Your Customer (KYC</a>) checks and offer easy <a href="https://cointelegraph.com/explained/cryptocurrency-on-ramps-and-off-ramps-explained" rel="noopener noreferrer nofollow">on-ramp solutions</a> to facilitate cryptocurrency purchases via fiat currencies. The users who appreciate the centralized exchange experience can potentially leave their Bitcoin holdings on their exchange accounts, making the chosen crypto exchange their default custody provider.&nbsp;</p>
 <p>The option does have some downsides, and users should become familiar with the risks of this approach, which can include the complete loss of assets due to hacking or <a href="https://cointelegraph.com/news/getting-funds-out-of-ftx-could-take-years-or-even-decades-insolvency-lawyers" rel="noopener noreferrer nofollow">exchange insolvency</a>.</p>
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 <h2 data-ct-widget="explained-block-title" id="bitcoin-self-custody-options">Bitcoin self-custody options</h2>
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 <p><em>Bitcoin self-custody represents scenarios where users take full accountability and ownership of the BTC they own, which comes with its own <a href="https://cointelegraph.com/news/brazilian-crypto-streamer-loses-50k-by-exposing-private-key" rel="noopener noreferrer nofollow">pros and cons</a>. The critical aspect of self-custody is safeguarding the private key that controls user wallets.</em></p>
 <p>For sophisticated users who believe in the popular maxim of “not your keys, not your crypto” within the cryptocurrency ecosystem and are willing to put in some extra effort to set up self-custodial options, here are some potential approaches:</p>
 <h3 id="private-hot-wallets">Private hot wallets</h3>
 <p>Private hot wallets range from mobile to desktop solutions where users can set up a wallet and safeguard the private key to control assets within that wallet. These are usually termed hot wallets as they stay connected to the internet and can interact with multiple <a href="https://cointelegraph.com/learn/what-are-dapps-everything-there-is-to-know-about-decentralized-applications" rel="noopener noreferrer nofollow">decentralized applications (DApps)</a> to perform regular transactions. However, it’s not wise to store a <a href="https://cointelegraph.com/news/mark-cuban-hot-wallet-hacked" rel="noopener noreferrer nofollow">significant amount</a> of BTC in hot wallets.</p>
 <h3 id="private-hardware-wallets">Private hardware wallets</h3>
 <p><a href="https://cointelegraph.com/news/how-to-use-a-crypto-hardware-wallet" rel="noopener noreferrer nofollow">Hardware wallets</a> are usually considered cold wallets, as they only interact with external applications when required. Security-conscious users can benefit greatly from using a hardware wallet as a cold storage solution for their Bitcoin. Cold storage wallets potentially help users avoid malicious contracts, hacks or <a href="https://cointelegraph.com/news/balancer-social-engineering-attack-dns-provider-frontend-hijack" rel="noopener noreferrer nofollow">social engineering attempts</a>.</p>
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 <h2 data-ct-widget="explained-block-title" id="bitcoin-self-custody-security-measures">Bitcoin self-custody security measures</h2>
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 <p><em>Users who opt for <a href="https://cointelegraph.com/news/how-to-store-crypto-assets-in-a-self-custodial-wallet" rel="noopener noreferrer nofollow">self-custodial options</a> must ensure best practices are followed to safeguard their assets.</em></p>
 <h3 id="private-key-storage">Private key storage</h3>
 <p>For users with private wallets, their <a href="https://cointelegraph.com/news/how-to-backup-your-crypto-wallet-private-keys" rel="noopener noreferrer nofollow">private key</a> is the only way to control assets tied to their address. They must protect it at all costs and avoid exposing it to unknown parties. As a private key record is essential, it should not be stored by users on their devices or computers as plain text, as this exposes them in the event of a security breach.&nbsp;</p>
 <p>Paper wallets offer a simple start for secure key storage, but consider durable metal solutions for ultimate protection. These specialize in engraving users’ private keys or <a href="https://cointelegraph.com/explained/what-is-a-seed-phrase-and-why-is-it-important" rel="noopener noreferrer nofollow">seed phrases</a> onto fire-and-flood-resistant metal, ensuring your crypto assets are protected for the long haul.</p>
 <h3 id="multisig-wallets">Multisig wallets</h3>
 <p><a href="https://cointelegraph.com/news/multi-signature-crypto-wallets-are-the-safest-bet-for-daos" rel="noopener noreferrer nofollow">Multisignature wallets</a> offer an additional layer of protection where multiple individuals would need to sign a transaction to move any Bitcoin within the underlying wallets. These are standard measures in cryptocurrency project treasuries or <a href="https://docs.google.com/document/d/1Iet6V-9tK-eTZE0VNPPfM2tM-MXWSHBlXPqvwFSM1Iw/edit#heading=h.oorgyih2cg33" rel="noopener noreferrer nofollow" target="_blank">decentralized autonomous organizations DAOs</a> to protect against a single wallet or individual compromise. Still, they can be adopted by security-conscious retail users who can draft in families and friends to provide an additional layer of safety.</p>
 <h3 id="custodial-institutions-and-third-parties">Custodial institutions and third parties</h3>
 <p>For organizations and <a href="https://cointelegraph.com/news/71-of-high-net-worth-individuals-have-invested-in-digital-assets-survey" rel="noopener noreferrer nofollow">high-net-worth individuals (HNWIs)</a>, relying on reputable third parties to safeguard their assets is a sensible approach that would meet many of their regulatory and compliance commitments.&nbsp;</p>
 <p>Custodial services for digital assets mirror existing stocks, precious metals and art models.</p>
 <p>Reputable institutions like Coinbase and BitGo offer digital assets custody solutions. These entities are certified as custodial institutions under the laws and regulations of their incorporated jurisdictions. They adhere to very high standards in terms of security measures, insurance, audits and compliance that would satisfy the requirements of institutional investors and HNWIs.</p>
 <p>These custodial solutions have a gamut of physical security, cold storage, operational security workflows and access controls to safeguard the Bitcoin entrusted to them. They can also regularly provide users with clear reporting and holdings status to maintain high transparency levels.</p>
 <h3 id="ownership-jurisdiction-and-tax-efficient-structures">Ownership, jurisdiction and tax efficient structures</h3>
 <p>Ownership jurisdiction and holding structures can significantly impact one’s cryptocurrency custody choices. Considering these factors alongside the technical aspects of custody is essential to ensure your assets are secure and legally compliant.</p>
 <p>Global institutions holding Bitcoin are sometimes complex legal entities when it comes to their jurisdictions and holding companies. Similarly, family offices or HNWIs can opt to hold BTC via holding companies or trusts in different jurisdictions, which would impact the potential custodial solutions available to them.&nbsp;</p>
 <p>These structures are predominantly driven by privacy and tax efficiency benefits; however, users must ensure that their chosen custody options are <a href="https://cointelegraph.com/magazine/best-worst-countries-crypto-taxes-crypto-tax-tips/" rel="noopener noreferrer nofollow">legal and compliant</a> by seeking appropriate advice from financial and legal experts.</p>
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Various forms of Bitcoin custody, explained

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