In the first part of our commentary on cryptocurrency custody, we explained how it works and a couple of the biggest drawbacks.
In this article, we‘ll look at more reasons why custodians are not in the spirit of the cryptocurrency revolution and outline how easy it is to set yourself up for self-custody.
City Banquet 2030 – The perfect vessel to grow your business this yearCustody Introduces Extra Costs
Custodian solutions introduce more costs for investors. For instance, if we take Coinbase’s custody solution as an example, it can cost up to $10,000 plus a 50 basis point annual fee. It’s cheaper for cryptocurrency users to set up their own cold storage solutions.
Since we can lend bitcoin out on exchanges or we can deposit coins into interest-bearing cryptocurrency accounts, there is an opportunity cost involved when using a custodian. Another potential opportunity cost includes missing out on forked coins (e.g., Bitcoin Cash or Bitcoin Gold).
Does the custodian also take custody of those assets too? What happens if custodians take these forks and airdrops from you, are they legally liable? These are some unresolved questions.Restricted Access to Liquidity
When you hand over the responsibility of managing your digital assets to a custodian, you give up some control of your bitcoin.
Most custodians need over 24 hours’ notice to withdraw your coins. Because of these restrictions, you may not be able to access your funds in the event of market volatility.
You can move funds in and out of self-custody to exchanges or other services whenever you want.Estate Planning
A third-party custodian may not be able to transfer your assets to your family/heirs in case of an emergency. While there is at least one custodian with estate planning, there’s no industry standard and the majority haven’t got it in place. If the custodian disappears, your bitcoins are lost forever.Charles Phan