Since 2010, an approximate 4% of the total available supply of bitcoin has vanished annually. The majority of these disappearances are accidental losses incurred by users who initially bought Bitcoin and opted to HODL ("hold on for dear life" ) by self-managing their holdings. Upon attempting to regain access, they either misplaced, deleted, or couldn't retrieve their private keys. Other losses stemmed from breaches or the collapse of exchanges. A critical measure to prevent such occurrences when investing in cryptocurrencies involves adopting a secure and well-considered custody solution.

Within the crypto market's multiple cycles, it's evident that even prominent and long-standing crypto custodians and exchanges can vanish abruptly, impacting numerous clients, potentially numbering in the thousands or millions. Irresponsible or deceitful conduct can lead to diminished trust in a market entity, revealing potential inadequacies in securing client deposits (liabilities) against the underlying crypto assets. Various methods exist for storing cryptocurrencies, each offering distinct levels of security and convenience. Here are some commonly used approaches.

Storing crypto assets in warm or hot solutions

In the realm of cryptocurrencies, the term "hot storage" pertains to storage systems connected to the internet, facilitating swift access for transactions and operations. It stands in contrast to "cold storage," where cryptographic keys and assets are kept offline to heighten security.

A hot wallet denotes a specific type of cryptocurrency wallet connected to the internet, actively utilized for transactions, trading, and other digital asset transfers. These wallets face greater vulnerability to online security threats, such as hacking. Hot wallets suit users needing immediate access to their cryptocurrency funds and frequently engaging in trading or transactions. 

Storing crypto assets in cold or offline wallets

Cold storage in the context of cryptocurrency refers to keeping private keys and other sensitive information offline, disconnected from the internet. This method enhances security by reducing the exposure to online threats, such as hacking and unauthorized access. Cold storage options include hardware wallets or even air-gapped computers. While cold storage provides a higher level of protection against cyber-attacks, it may be less convenient for quick access to funds, making it suitable for storing large amounts of cryptocurrency for long-term safekeeping. Users often opt for a combination of cold and hot storage solutions based on their specific security and accessibility needs.

What does the phrase “not your keys – not your coins” mean?

"Not your keys, not your coins" stands as a widely embraced statement within the cryptocurrency community, stressing the critical significance of managing and safeguarding private keys to uphold ownership and authority over digital assets (coins). Lack of possession of the private keys linked to a cryptocurrency wallet indicates an absence of full control over the funds contained in that wallet. For instance, if funds are housed on an exchange where the user lacks control of the private keys, the exchange retains authority over the assets. The phrase implies that without control over the private keys, genuine ownership and control of the coins are absent. Thus, ownership and control of cryptocurrency directly hinge on the possession of the private keys.

This expression serves as a cautionary reminder regarding potential risks tied to leaving funds on centralized exchanges or other platforms where users lack direct control over their private keys. To bolster security and maintain authentic ownership of their cryptocurrencies, individuals are advised to utilize wallets enabling control of the private keys, such as hardware or software wallets where exclusive access to the private key is ensured.

Why consider a custody service provider?

Custodial services cater to individuals in the cryptocurrency sphere who highly value peace of mind. These services offer a straightforward process for creating new passwords in case of forgotten ones, thus mitigating the risk of losing access to funds. Moreover, clients with significant cryptocurrency holdings favor these services due to enhanced security measures. They may opt for features like multi-signature wallets, particularly in situations where multiple decision-makers are involved in fund management.

Bitcoin Suisse stands out for providing the most comprehensive custody services in Switzerland and Europe. Pioneering brokerage since 2013 and introduced crypto-native services, including the tailored Vault solution for professional and institutional clients, since 2017. Find out how custody works at Bitcoin Suisse.