Definition ∞ Centralized Custody refers to the practice where a third-party institution, such as a cryptocurrency exchange or a specialized custodian, holds and manages digital assets on behalf of their owners. In this arrangement, the custodian maintains control over the private keys associated with the assets. Users trust the centralized entity to secure their funds against theft, loss, and unauthorized access. This model contrasts with self-custody, where individuals retain direct control over their private keys.
Context ∞ The debate surrounding centralized custody in the crypto news often centers on the trade-off between convenience and security. While it simplifies asset management for many users, it introduces a single point of failure and counterparty risk, as evidenced by past exchange collapses or security breaches. Regulatory bodies are increasingly scrutinizing centralized custodians, demanding stricter compliance and proof of reserves to protect client assets. This ongoing discussion shapes investor preferences and the evolution of secure asset storage solutions.
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