The Etana Custody Guide to Crypto Custody for Investors

How digital asset investors can use custodians to trade & invest safely

Introduction

Cryptocurrency presents investors with exciting new possibilities, by eliminating the need for intermediaries in certain transactions. Nevertheless, there are aspects of the financial system that will remain unchanged. At Etana, we believe the custody services we offer are the bedrock of any investing ecosystem, whether traditional or crypto.

Digital assets may require new forms of custody, but the fundamental rationale for a dedicated custodian remains the same - to create a safe environment for investors to trade and hold their assets. The importance of crypto custody services for investors cannot be overstated.

What is custody and why is it important

Investors are not only at risk from outright criminals, but have also suffered losses from legitimate companies who have mismanaged their assets (e.g. Lehman Brothers in 2008 and FTX in 2022), or exchanges with lax security systems (e.g. the Mt. Gox disaster of 2014). They are also more vulnerable to personal errors such as accidental loss of crypto wallet keys.

Although as a custodian Etana offers various services beyond safekeeping, our fundamental role is to mitigate risks to investor funds, and advocate for investor interests. Sadly, the financial world is teeming with other players that may prioritize different objectives, particularly in the digital asset space.

Digital assets are different from traditional assets. Even though most holdings (stocks, bonds) exist in electronic form, the ownership details are recorded on centralized databases maintained by depositories, and are accessible only to authorized parties.

Ownership of digital assets, on the other hand, is typically public and decentralized. This means that the assets themselves can be withdrawn by anyone who holds the "private keys" (basically a long alphanumeric password) to the "crypto wallet" (like a bank account but for crypto) in which they are stored.

This makes assets easier for bad actors such as hackers to get hold of and make off with. Because crypto transactions are essentially irreversible, it is notoriously hard to retrieve stolen crypto. The same applies in the case of unintentional loss of private keys, as you cannot call the customer help desk to request a new password (there isn't one). The assets are lost for good.

Rather than holding your assets in a specific location (like gold bullion), Etana is essentially storing and guarding your private keys. Most custodians achieve this via a combination of measures: from 'cold' storage (storing the keys in a location that is not connected to the internet) to 'warm' and 'hot' solutions (where the wallets remain partially or wholly online). Typically, the 'colder' solutions mean higher security but lower ease of access, making it harder to trade quickly. Etana utilizes multi-party computation (MPC) technology to allow a combination of both security and ease of access.

Why choose a regulated custodian, and how to do it

In the early 20th century, it was common for investors to store financial assets like stock certificates at home in a personal safe. As time passed, various third-party services - including custody solutions - arose. Nowadays it is mandated by law that certain assets (such as mutual funds) must be held with a regulated custodian.

Digital assets are following a similar trajectory to traditional assets.

Just like keeping stock certificates in a safe, you can "self-store" your digital assets by keeping your private keys on paper or an encrypted device, such as a Ledger hardware wallet. This means you control your assets completely, but also means you are fully responsible for managing the risks. Imagine if you lost your car whenever you misplaced your car keys. It's like that, but with your crypto net worth.

A popular alternative option is to share your private keys with a cryptocurrency exchange. The advantage of this is that it allows you to retrieve the keys if you misplace them. Furthermore, you can trade on the exchange without needing to enter or verify the private key details.

The drawback is that your keys are often stored alongside those of the other users of the exchange. These stashes of private keys make a convenient and attractive target for hackers, who only need to bypass one security system instead of thousands.

The final, most secure option is to store one's keys with a dedicated, regulated crypto custodian like Etana Custody. As a regulated custody provider, we have bank-grade security (making us a less appealing target for hackers) but unlike banks, we do not lend out or invest your assets.

Ensuring that your custodian is regulated (i.e. has trust status, or is otherwise recognized by their state regulator, and conforms to rigorous standards such as SOC 2) is an effective way to ensure that their security systems are adequate, without needing to be a security expert yourself.

There is no single custodial solution that fits all investors. Higher security can entail slower processes and limited functionality - neither of which is helpful in a fast-paced and diverse market such as crypto. Etana sets itself apart by providing both flexibility and security, eliminating the need to compromise one for the other.

Conclusion

While investing in digital assets can be risky, with Etana Custody, you can mitigate the risk and focus on the opportunities.

The dynamic nature of the crypto market demands a custodian with a solid foundation of security & expertise, as well as the ability to offer investors versatile, bespoke solutions.

With coverage of G10 currencies and a wide variety of crypto assets, Etana Custody offers all this and more, making it a sound choice for investors seeking higher gains at lower risk.