Introduction
As concerns about inflation persist and negative interest rates loom, even conservative institutional investors—including corporate treasurers—are exploring digital assets as a viable investment. Gartner reports that 5% of CFOs and senior finance executives plan to integrate Bitcoin into their balance sheets in 2021. However, existing digital asset infrastructure often falls short in providing secure, liquid, and workflow-friendly custody solutions.
This guide explores three primary custody models—self-custody, joint custody, and third-party custody—alongside innovative alternatives like Qredo’s decentralized network.
1. Self-Custody: Full Control Over Digital Assets
Unlike institutional investors bound by custody rules, corporate treasurers can opt for self-custody, akin to storing gold in a private vault. With cryptocurrencies, control is exercised by holding private keys.
Single-Signature Wallets
Small businesses may use single-signature hardware wallets (e.g., secure USB devices) to manage assets.
Pros
- Complete control for individuals (e.g., CEOs signing transactions).
Cons
- Single point of failure: Loss, theft, or compromise of the wallet risks irreversible asset loss.
- Scalability issues: Impractical for organizations requiring multi-party approvals.
Multi-Signature Wallets
Multi-signature (multisig) wallets require N out of M private keys to authorize transactions (e.g., 2-of-3 signatures).
Pros
- Enhanced security via distributed key management.
- Configurable approval workflows (e.g., departmental permissions).
Cons
- Slower transactions due to blockchain congestion and higher fees.
- Limited flexibility: Changing signers requires transferring funds to new addresses.
- Public blockchain visibility exposes signing arrangements to potential attackers.
2. Joint Custody: Shared Control with External Co-Signers
Joint custody delegates partial control to third parties, implemented via multisig or MPC-TSS (Multi-Party Computation with Threshold Signature Schemes).
On-Chain Multisig Joint Custody
Example: A treasurer holds 2-of-3 keys, delegating the third to a semi-custodial service.
Pros
- Reduced single-point failure risk.
Cons
- Inherits multisig drawbacks and adds dependency on a trusted third party.
Off-Chain MPC-TSS Joint Custody
MPC-TSS moves signing off-chain, generating a single signature from distributed nodes.
Pros
- Faster, fee-free transactions.
- Cross-chain compatibility (supports 95% of blockchains via ECDSA).
- Improved privacy (no on-chain signature exposure).
Cons
- Centralized MPC nodes risk insider threats (e.g., QuadrigaCX collapse).
- Opaque software layers may undermine security transparency.
3. Third-Party Custody: Traditional Custodial Services
Corporate treasurers may opt for custodians (e.g., banks or specialized crypto services) managing multisig wallets.
Pros
- No technical expertise required.
Cons
- Centralization risks: Assets can be frozen, hacked, or commingled.
- High fees and slow withdrawal processes (e.g., business-day delays).
- Historic failures (e.g., NY Mellon’s 2015 custody breach).
Qredo Network: Decentralized Custody for Decentralized Assets
Qredo introduces decentralized custody via MPC across an independent blockchain network, blending self-, joint-, and third-party custody without trade-offs.
Key Features
- Instant settlements: Real-time asset coordination between custodians and brokers.
- Unified dashboard: Monitor balances, transactions, and entity-level positions.
- API integration: Connect to existing treasury systems via REST APIs.
- Custom workflows: Delegated approvals with flexible M/N thresholds.
- Immutable audit logs: Layer-2 blockchain records for compliance.
- Lloyd’s-insured security: Seven-layer protection against hacks/insider threats.
👉 Explore Qredo’s institutional solutions
FAQs
Q1: What’s the difference between multisig and MPC-TSS?
A: Multisig uses on-chain transactions with multiple signatures, while MPC-TSS signs off-chain via distributed nodes for speed and cross-chain compatibility.
Q2: Can self-custody scale for large enterprises?
A: Yes, with MPC-TSS or Qredo’s decentralized network, which supports unlimited signers and customizable workflows.
Q3: How does Qredo ensure compliance?
A: Built-in messaging for travel rule adherence and immutable audit trails meet regulatory standards.
👉 Learn more about crypto custody best practices
Conclusion
Choosing the right custody model depends on balancing security, accessibility, and compliance. While traditional options like multisig or third-party custodians offer familiarity, innovations like MPC-TSS and Qredo’s decentralized network provide scalable, secure alternatives for institutional adoption.
For tailored guidance, consult a digital asset custody specialist.