By Hilal Ahmad Lone
The original promise of cryptocurrency was simple and radical: put control of value back into the hands of individuals. Private keys, not bank ledgers, would determine who truly “owned” an asset. Yet nearly 15 years into this experiment, much of the ecosystem behaves as if custody is an afterthought, and the consequences keep surfacing in headlines.
Ownership and custody are related but distinct. Ownership answers the legal and economic question – who has the right to an asset? Custody answers the practical question – where and how are the keys held, protected, and moved? Failures in custody don’t merely create technical losses; they erode confidence, slow institutional adoption, and force users back toward opaque intermediaries.
We can see the scale of the problem in the data. Crypto services reported billions lost to hacks across recent years: Chainalysis estimates roughly $2.2 billion stolen in 2024 from platform hacks, with 2025 continuing to show high volumes of thefts and service losses. High-profile incidents, from exchange compromises to massive smart-contract exploits, keep the risk in plain sight. These losses are not static numbers on a spreadsheet; they are real portfolios, families, and businesses losing access to assets.
At the same time, institutional interest has moved from curiosity to commitment. Surveys from major custodians and consultancies show a marked shift: a sizable fraction of institutional investors now design allocation plans that include digital assets, and many cite custody capability as a gating factor for allocation decisions. The market for custody solutions is forecast to expand rapidly as professional investors seek secure, auditable ways to hold crypto exposures. Yet the custody market remains fragmented, with notable variance in technology, governance, insurance, and legal settlement practices between providers.
Why Does Custody Still Fail Us?
First, custody in crypto is fundamentally harder than custody in traditional finance. Private keys are absolute: if leaked or destroyed, the asset is effectively gone. This “zero recovery” property demands not only technical controls (cold storage, multisig, hardware security modules) but also operational maturity; key ceremonies, role separation, disaster recovery, and tested playbooks for incidents. Many custodial offerings still mix institutional-grade controls with consumer-era conveniences in ways that create brittle systems.
Second, legal and contractual clarity lags technology. Placing tokens with a custodian should be as unambiguous as depositing cash in a bank, but questions persist about who legally owns on-chain assets when platforms become insolvent or when smart-contract wrappers are used. Courts and regulators are only beginning to grapple with these boundary cases, and where the rules are fuzzy, risk migrates to the most vulnerable party: the customer. Journalistic and legal analyses show courts increasingly wrestling with “ownership” when assets are held by third parties, a problem that will not be fully solved purely by engineering.
Third, incentives and business models play a critical role. Many custodial services were originally built within exchanges, where the primary focus was trading activity and liquidity rather than long-term safekeeping. This dual role creates conflicts of interest when the same platform is both market-maker and custodian; risks multiply in ways that technology alone cannot resolve. What the industry needs are independent custodians operating with transparent governance, clear accountability, and auditable segregation of customer assets.
What Does It Actually Mean To ‘Get Custody Right’?
It begins with recognising that custody is not just a technical challenge, but also an operational and legal one. Effective solutions must bring together strong engineering safeguards (such as secure hardware environments, multi-party key management, and rigorous security testing) with disciplined processes, including role separation, key rotation, and rehearsed response plans for emergencies. Alongside this, there must be legal certainty: customers should have clearly defined ownership rights, and structures should be in place to keep assets bankruptcy-remote. Finally, insurance must be straightforward and transparent, with no ambiguity about what is covered and what is not. Independent audits and transparent reporting, not marketing brochures, are necessary to build institutional confidence.
Regulation will help, but regulation alone is not a panacea. Roundtables and regulatory attention on custody reflect a healthy maturation of the industry: regulators want to see clear custody practices before recommending wider institutional participation. However, good regulation should set outcomes and guardrails while letting technologists and operators innovate on safe designs.
Finally, education matters. Individuals and institutions must understand custody trade-offs. Self-custody provides maximum sovereignty but demands technical competence and operational discipline. Third-party custody trades some sovereignty for convenience, but that trade must be explicit, auditable, and legally protective for the asset owner.
Crypto’s promise is ownership. To honour that promise, we must stop treating custody as a product feature and start treating it as the foundation of trust in this asset class. Technical brilliance without institutional rigour leaves ownership as an idea, not a lived reality. If the industry gets custody right, technically, operationally, legally and culturally, the next phase of adoption will follow. Until then, ownership will often remain a slogan rather than something you can reliably exercise.
(The author is the Chief Information Security Officer & Vice President at Liminal Custody)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.
