Digital Asset Custody Guide in 202311 min readReading Time: 4 minutes
We will write about the importance and meaning of Digital Asset Custody. In the current economy, digital assets like cryptocurrencies digital securities, and tokens are becoming more and more common. This essay will examine the development of digital asset custody, the significance of protecting your digital assets, and practical tips for doing so.
What Is Digital Asset Custody?
An account that stores digital data, including cryptocurrencies and digital content, is known as a digital asset account. It is necessary to report any overseas holdings of digital assets to the tax authorities. Any profits obtained from selling digital assets are taxable as income.
An individual’s digital assets, which are defined as assets made up of digital data that increase their value by granting ownership or usage rights, are kept in digital asset accounts. These virtual assets comprise digital files, such as software, images, videos, graphics, and sounds.
History of Digital Asset Custody
In 2009, Bitcoin, the first digital asset, was released, and with that release arose a demand for safe storage options. People first held their digital assets on their own computers or exchanges in the early days of Bitcoin.
The need for safe storage options, however, increased along with the price of Bitcoin. One of the first organizations to provide institutional-grade solutions for digital asset safekeeping was Xapo, which was established in 2012.
Since then, several other businesses have joined the market and started providing custody services for digital assets.
Why Digital Asset Protection Is Important
Digital assets can be stolen, lost, or damaged. Digital assets are susceptible to cyber-attacks, hacking, and theft since they are immaterial and transferable rapidly and readily.
In order to defend against these threats, digital asset security is crucial. Digital assets can be lost without the correct security, leading to huge financial losses.
While engaging in legal actions like litigation or divorce, asset protection serves as a barrier between the individual and creditors. Given how litigious modern society is, business owners in particular should give asset protection strategy top priority.
How do You Safeguard Digital Assets?
Securing digital assets has become vital in the digital age. If these assets are accessed by unauthorized individuals, they can lead to financial gain, identity theft, fraud, or permanent loss. To safeguard your digital assets, follow the best practices outlined below.
- Digital asset monitoring services are an effective way to safeguard your assets. They offer continuous monitoring, alerts, and forensic analysis to detect and prevent cyber-attacks
- Using encryption can protect digital assets from being accessed by hackers, cybercriminals, or other malicious actors. By encrypting sensitive data, you can ensure that even if it is stolen, it cannot be used by unauthorized parties.
- One of the simplest ways to protect your digital assets is to use strong, unique passwords. Strong passwords should be at least eight characters long, include a mix of uppercase and lowercase letters, numbers, and special characters.
- User authentication requirements, such as two-factor authentication, add an extra layer of security to your digital assets.
- Audit trails are a record of all activity related to your digital assets. By using audit trails, you can monitor who has accessed your digital assets, what they have done with them, and when they did it.
- Backing up your digital assets is an essential safeguard against data loss. By creating backups, you can ensure that your data is not lost forever in the event of a cyber-attack or other disaster.
Institutional Digital Asset Custody
Institutional digital asset custody refers to the provision of digital asset custody services to institutional clients including banks, hedge funds, and other financial institutions.
Institutional providers of digital asset custody offer a higher level of security and compliance compared to typical custodians. Institutional providers of digital asset custody are subject to stringent regulatory limitations, ensuring that they provide trustworthy and safe custody services.
Digital Asset Custody Benefits
Custody of digital assets has a number of advantages, including improved security, compliance, and convenience.
The following are some advantages of digital asset custody:
- Custody of digital assets offers a straightforward and practical method of managing digital assets. Individuals no longer have to take care of their own private keys, wallets, or other technical components of self-custody.
- Digital asset custody offers a higher level of security compared to self-custody. Custodians use robust security measures, including as multi-signature wallets, cold storage, and other encryption techniques, to secure digital assets against theft, hacking, and other security threats.
- The risks of self-custody are reduced by digital asset custody. Self-custody can be dangerous, especially for people without the necessary security measures in place or who are not tech-savvy.
- Businesses may increase customer satisfaction and loyalty by offering their clients a safe and practical option to store their digital assets by collaborating with a credible digital asset custodian.
Digital Asset Custody Challenges
Custody of digital assets confronts a number of difficulties, including legislative ambiguity, cybersecurity threats, and a lack of standards. Because the regulatory environment for digital asset custody is always changing, it is challenging for providers of digital asset custody to maintain compliance.
Risks associated with cybersecurity are also a major concern since digital assets are susceptible to hacking and cyberattacks. Finally, lack of standardization in digital asset custody makes it challenging to compare different custody providers and their services.
What is a Digital Asset Manager?
Managing digital assets may become a time-consuming task as your organization expands. To relieve some of this pressure, it could be advantageous to hire a digital asset manager for your team.
The different types of digital content that can be included in digital assets include pictures, videos, audio files, software, and other digital documents. The primary duty of a digital asset manager is to ensure that digital assets are used, stored, and made readily available.
Along with managing digital assets, a digital asset manager may also be responsible for ensuring that they are properly secured and protected from unauthorized access.
What are the key Requirements of Digital Asset Custodians?
Digital asset custodians are crucial to the security of digital assets. However, there are conditions that must be completed in order to be a successful custodian of digital assets.
- A digital asset custodian’s main duty is to offer a safe place for their clients’ digital assets to be stored.
- To enable the transfer of assets, digital asset custodians need a solid and secure link to the blockchain network.
- Custodians of digital assets are obligated to follow the laws and regulations of the countries in which they conduct business.
In conclusion, custodians of digital assets are essential to the security of such assets.