There are 2 main methods of storing cryptocurrency: one involves storing it yourself (non-custodial storage), and the other is to have another individual, business or entity store it for you (custodial storage).
Custodial storage involves entrusting a third-party service with the protection, storage and, ultimately, control over your cryptocurrency. This is a solution mostly favoured by those who are intimidated by the process of non-custodial storage or those who entrust their cryptocurrency with an exchange or broker to be able to swiftly act on changes in market trends, sentiment or prices.
The decision to use custodial storage services is personal. It should be based on your level of risk appetite and how much of your investment you’re willing to leave in possession of someone else.
Some good questions to ask yourself when considering custodial solutions include:
“Is the custodian insured against theft or loss?” – if a custodian is not insured, there is a risk that your funds could be lost if the custodian is hacked or your funds are stolen.
“If the funds I store with a custodial solution are lost or stolen, how would this affect my financial situation?
Examples of custodial storage solutions include exchanges (e.g. Binance, Independent Reserve), brokers (e.g. Caleb and Brown) and dedicated custody solutions (e.g. Kingdom Trust, BitGo).
Non-custodial storage is the act of storing your own cryptocurrency. Non-custodial wallet options give you full control of your private key and therefore full control of your cryptocurrency.
It’s often suggested that one of the best investments you can make is in your own knowledge and learning and by investing time into learning how to secure your own cryptocurrency, you ensure that control over your cryptocurrency is exclusively yours. In this way, you aren’t relying on someone else to store and secure your cryptocurrency for you, you are truly ‘your own bank’. Yet, not everyone is prepared to bear the responsibility of controlling their private keys—which is why professional custodian services exist.
Examples of non-custodial storage solutions are Ledger, Trezor, KeepKey and MetaMask.