Cryptoassets, the future of custody

Cryptoassets can be held in custody through various methods and entities that specialize in providing secure storage solutions. Here are some common ways in which cryptoassets can be held in custody:

Crypto Exchanges: Many cryptocurrency exchanges offer custodial services, where they hold the cryptoassets on behalf of their users. When you deposit your cryptoassets into an exchange account, they are stored in the exchange’s wallet, and the exchange takes responsibility for their security.

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Third-Party Custodians: There are specialized third-party custodial services that focus solely on securely holding and managing cryptoassets. These custodians employ advanced security measures, such as multi-signature wallets, cold storage (offline storage), and robust security protocols to protect the assets.

Hardware Wallets: Hardware wallets are physical devices designed to securely store private keys, which are necessary to access and manage cryptoassets. These wallets generate and store private keys offline, providing an extra layer of security. Users can transfer their cryptoassets to a hardware wallet and keep them offline, away from potential online threats.

Paper Wallets: A paper wallet involves generating a pair of public and private keys, typically in the form of a QR code, and printing them on a physical piece of paper. The paper wallet is then stored in a secure location. However, it’s essential to generate paper wallets securely and keep them safe from physical damage or theft.

Self-Custody: Individuals can choose to hold their cryptoassets themselves by managing their private keys. This approach typically involves using software wallets, such as desktop wallets or mobile wallets, where users have control over their private keys. It requires taking extra precautions to ensure the security of the private keys, such as using strong passwords, enabling two-factor authentication, and keeping backups.

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Although MiCA aims to bring some consistency to the regulatory treatment of cryptoassets and crypto service providers across the EU, the difficulty is that the question of bankruptcy remoteness and segregation in many EU jurisdictions depends on a combination of national civil, property and insolvency law.

This presents a challenge in many member states where cryptoassets remain to be characterised, with treatment around them to be confirmed.

A bankruptcy remote structure refers to arrangements or entities that are designed to minimize the impact of bankruptcy proceedings on the assets held within them. The goal is to protect the assets from being included in the bankrupt entity’s estate, potentially shielding them from creditors.

In the context of cryptoassets, creating a bankruptcy remote structure typically involves the use of trusts, special purpose vehicles (SPVs), or other legal entities. These entities would hold the cryptoassets on behalf of the beneficial owners while maintaining legal separation and distinct ownership from the entity that could be subject to bankruptcy.

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By employing bankruptcy remote structures, individuals or organizations seek to mitigate the risk of having their cryptoassets tangled in bankruptcy proceedings, potentially preserving their value and ownership rights. These structures often involve legal agreements, custody arrangements, and carefully drafted documentation to establish the separation and protection of assets.

It’s important to note that the effectiveness and enforceability of bankruptcy remote structures can vary across jurisdictions and legal frameworks. Additionally, the specific details and requirements may depend on the nature of the cryptoassets, applicable laws, and the involved parties.

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In reference to how it is to date, the legal system and the capacity against bankruptcy, in main places in the crypto world, we have an explanatory table, where we put Germany and the Netherlands, as an example of Europe, USA, for the context of great global giant and other countries such as the United Kingdom or Australia, or more exotic but which are gaining momentum in the crypto world, such as the UAE and others.

And what does #BELOBABA think about it?

 We are working closely on the law, without forgetting that we are still at the beginning of all the regulations that are yet to come.

In this new crypto summer that will arrive, we will also see how the adoption of technology continues its course and will further force countries to regulate custody even more, to help improve the security and legality of the crypto world.