Exchange custody refers to the practice where a cryptocurrency exchange holds and manages the private keys for its users’ digital assets. In this arrangement, users do not directly control their private keys but rather trust the exchange to securely store and transact their funds. This service simplifies asset management for users but introduces counterparty risk, as the security of funds depends entirely on the exchange’s operational integrity. It is a common model for retail crypto holdings.
Context
The security and solvency of exchanges providing custody services remain a central concern for digital asset investors and regulators alike. High-profile hacks and exchange collapses frequently underscore the risks associated with third-party custody. News often discusses debates between self-custody advocates and those who prefer the convenience of exchange-held assets, emphasizing the importance of choosing reputable platforms.
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