Crypto Trustees: Custodians

26 May 2023

If we were only going to share one lesson about cryptocurrency, it would be the well-known phrase in the market: “Not your keys, not your crypto”. Far from a quirky catchphrase, failure to understand the consequences of the message has resulted in fortunes being lost with no possible means of recovery.

The owner of any cryptocurrency will be assigned two keys – one public and one private – which are randomly generated numbers with hundreds of digits. The public key is used as an identifier for transactions, while the private key denotes ownership. With over US$100 billion of Bitcoin alone estimated to be lost “mostly because investors lost private keys”, the security should be a priority for the owners of any cryptocurrency.

From offline wallets, flash drives and notebooks to pieces of paper with segments of the key hidden in locations across the globes, keeping a private key safe is no easy feat. For an investor who has often spent years building their digital wealth, trusting a service provider with their private key is a big ask and a responsible trustee should be respectful of that.

An essential consideration for our clients is our role in safeguarding their private keys. The first assurance from the outset is that we do not hold, or have sight of, our clients’ private keys. Instead, we use specialist custodians with whom we have excellent relationships, that have been through our rigorous due diligence processes and are leaders in their field for technologies in securing private keys.

In choosing appropriate custodians, we consider their actual – not theoretical – experience, their policies and procedures, how they segregate their assets, their financial position, amongst many other things. We question a custodian’s technical expertise and abilities, including their responsiveness and upgrading capabilities when the market necessitates it. It is only by investing a great deal of time researching and building close working relationships with custodians that we are comfortable in recommending them to our clients.

Aside from personal security for the investor, holding cryptocurrency within a trust structure and using specialist custodians for private keys safeguards the assets for future generations. While some assets can be willed to heirs, it would not be safe to detail a private key in a will as it is a public document and anyone with access to the document could potentially steal the entire cryptocurrency wallet. Similarly, clients may not wish to give their private key directly to a beneficiary, who may not have the expertise or understanding of how to manage those assets.

By using a trustee and a specialist custodian, our clients have the assurance that the assets will be safeguarded for current and future generations in accordance with the Trust provisions and wishes of the Settlor, leaving management of the assets with a specialist in the interim.

Find out more

WATCH: Our Crypto Catch-up video series explores the role of a trustee and how their services can play a role in protecting digital assets, and potential barriers that can have an impact on investors.

Contact us for more information on how we can facilitate the off-ramping of your cryptocurrency.