What Is a Crypto Custodian and Do You Need One?

As cryptocurrency becomes more mainstream, you’ve likely heard terms like ‘custodian’ tossed around. But what is a cryptocurrency custodian, and do you need one?

Most individuals don’t need a cryptocurrency custodian, but the occasional few do. Read on to learn the pros and cons of a cryptocurrency custodian, and whether or not you need one.

What is a Cryptocurrency Custodian?

A crypto custodian is an individual or entity that helps you store your cryptocurrency securely. Though the term sounds fancy, it isn’t difficult to have a cryptocurrency custodian—all you have to do is have a wallet that is overseen by a trusted company or government.

Cryptocurrency custodians help individuals manage their cryptocurrency, either by providing a protected wallet, or providing advice on investments. No two cryptocurrency custodians are the same, and while you can hire an individual, the vast majority of individuals employing a cryptocurrency custodian are employing a business or platform in that role.

Pros of a Cryptocurrency Custodian

There are many benefits to using a cryptocurrency custodian, and they are as follows:

·      You don’t need to be tech-savvy to hold crypto

·      If you need help, there is someone available to assist you.

·      You don’t have to worry as much about losing track of your private keys

·      Custodians can help protect you from investing in crypto scams

·      Using a custodian makes cryptocurrency more user-friendly

·      It’s easy to turn your fiat into cryptocurrency

·      It’s easy to file taxes on your holdings

Like with anything else in life, however, these benefits come at a cost, which we will discuss below.

Cons of a Cryptocurrency Custodian

Of course, there are some cons to employing a cryptocurrency custodian, and they are as follows:

·      Cryptocurrency custodians aren’t free, and you’ll have to pay via fees or membership costs to retain one

·      Like anything else, a particular custodian can go under at any moment, leaving you with nothing

·      You don’t get the decentralization benefits of cryptocurrency

·      Sometimes the custodian is the fraud

·      The user is subject to random policy and service changes they may not agree to

·      Custodians can be hacked

As you can see, there are just as many downsides to having a custodian as there are benefits, meaning this isn’t always an easy choice to make.

Do You Need a Cryptocurrency Custodian?

In general, if you are researching and found this article, and have a basic understanding of cryptocurrency technology, we advise against having a cryptocurrency custodian. This is because, based on recent happenings (The fall of FTX, for example), in our eyes, the risks of having a custodian outweigh the benefits.

That being said, some individuals need a custodian, at least until they’ve been involved in cryptocurrency for a while.

Specifically, if you are new to cryptocurrency, we recommend starting with a custodian. Otherwise, it will be nearly impossible for you to learn, trade your fiat for crypto, and avoid scams. Then, once you have a basic understanding, you can switch to a non-custodial wallet (like Trezor, or LedgerS) later.

While the fees for the custodial wallets we recommend (see section below) tend to be high, we recognize that when you are new, you need this. Additionally, if you aren’t tech savvy, and don’t know many individuals in the cryptocurrency space, you may need to retain your custodial wallets because you just don’t have the connections to make your investments worth it without one.

For example, while there are decentralized exchanges like Uniswap that ensure you can trade your cryptocurrency for other cryptocurrencies with ease, these platforms don’t make it easy to turn your cryptocurrency back into fiat when you have an emergency. This is only possible with a custodial wallet, or friends in real life who will buy your cryptocurrency off you when you need.

Regardless, even if you need to maintain an account on a custodial platform, we recommend shifting the majority of your holdings to a non-custodial wallet as soon as you learn how to do so. This will allow you to minimize your risk of using a crypto custodian while also protecting you from some of the more common risks, like a platform going under, hacks, and scams.

Where Can You Find a Cryptocurrency Custodian?

If you do need a cryptocurrency custodian, it is very, very important that you choose the right one. In general, you want to pick one that meets all of the following qualifications:

·      Is legal in your country

·      Is registered with your country’s government

·      Allows you to use fiat for cryptocurrency purchases

·      The website is easy to use, navigate, and looks legitimate

·      Offers robust customer service options

·      Has been around for a long time

We recommend starting your search by seeing which platforms are popular in your country, and then opening a query with customer service. Ask if they are registered in your country, how they handle breaches or hacks, and the hours of their customer service. This alone should tell you whether or not the platform you intend to use is legit.

No matter what, avoid cryptocurrency custodians that aren’t registered and are new to the scene, as they are often scams. Remember, if something sounds too good to be true, it probably is, and you are better off not picking a cryptocurrency custodian instead of picking a sketchy one.

Here are the few cryptocurrency custodians we can recommend:

·      Coinbase

·      Binance

·      Kraken

As you can see, there aren’t many, and this is because it takes a long time for a cryptocurrency platform to gain a reputation. All of these platforms are registered with varying governing bodies and offer robust customer service to their users. They also all have protections against hacks and other scams.

That doesn’t mean that you shouldn’t use a custodian that isn’t on this list—after all, the choice is always yours. Just make sure anyone you use that isn’t on this list, you take the time to vet thoroughly. Remember, we still don’t recommend using these platforms for crypto storage long-term. Just use them enough to learn the ropes and then transfer your crypto to a cold (non-custodial) wallet.