How to properly manage and store your digital assets

Jeff Owens is an experienced investor, advisor, and entrepreneur involved in multiple startup exits. He has been in Blockchain as a builder, advisor, and investor since 2015. He aims to bring blockchain to the masses by matching world-class user experience from traditional products with the security and transparency of the blockchain.

Introduction

Digital assets have become increasingly popular over the years, and many people are now exploring various ways to manage them. Blockchain technology has enabled people to self-custody their digital assets, giving them control over their investments rather than relying on third-party platforms or banks. In this blog post, we will discuss some of the best ways to manage your digital assets, including self-custody, licensed custodians, and ensuring assets are stored on-chain.

Self-Custody

One of the best parts about blockchain technology is that it empowers you to self-manage and self-custody your assets. With self-custody, you have complete control over your private keys and can access your assets anytime. This eliminates the risk of having your assets locked in a platform that may become inaccessible due to regulatory or technical issues.

Licensed Custodians

If you prefer to use a third-party platform to manage your digital assets, it’s essential to choose one that is licensed and has a proven track record of being secure and trustworthy. Some of these platforms also offer insurance for your assets, providing an extra layer of protection.

But you need to be careful who you trust…

Trusting third-party platforms to hold your assets can have negative impacts, as we have seen with the recent controversies surrounding FTX and Celsius. In both cases, users reported having their assets locked in the platforms, with no way to access them. This highlights the importance of self-custody and choosing trusted and licensed platforms to manage the digital assets that create segregated, on-chain wallets for you.

The importance of storing assets on-chain

To ensure maximum security, it’s essential to store your assets on-chain. This means that your assets are stored on the blockchain itself rather than on a centralized platform. This reduces the risk of having your assets stolen or lost in case of a platform breach or other security issues. Look for custodians that use MPC technology or “Multi-Party Computation,” as this will split your private key into multiple shards controlled by you and your chosen custodian. All parties must agree to access to move funds, meaning the custodian always needs your approval and vice versa.

The importance of risk management within digital assets

For fiat currencies (i.e., USD, EUR, CNY, etc.), the most basic form of risk management is done by storing your assets in multiple reputable banks and multiple bank accounts within these banks. The most risk-averse companies will also hold their assets across multiple fiat currencies as well — imagine if you were a Russian company holding only the Russian Ruble in March of 2022. As we saw with Circle’s USDC, if one of the banks fails, you will feel the pain, but you will not be completely knocked out.

The cryptocurrency equivalent is to store your assets across multiple self-custodial wallets and/or on-chain wallets from licensed custodians, as well as holding multiple types of cryptocurrencies.

The benefits of multiple wallets

Similar to spreading your assets across multiple banks, companies, and individuals looking to manage their risk exposure with digital assets may benefit from holding them in multiple wallets. This should ring-fence your assets so that if one wallet is compromised, you will not lose all of your digital assets.

"Just as risk management in fiat tells most businesses to spread their assets across multiple banks and bank accounts, companies and individuals looking to manage their risk exposure with digital assets should consider spreading their digital assets across multiple wallets and custodial providers."

The benefits of multiple digital assets

Holding a mix of stablecoins (i.e., USDC, USDT, DAI, etc.) and volatile cryptocurrencies (i.e., BTC, ETH, ADA, etc.) will ensure that if one fails, you will not have complete exposure.

We see that most companies we talk to hold several regulated and audited stablecoins and a few of the top cryptocurrency tokens, like Bitcoin and Ethereum, to spread their risk across assets.

Deploying risk management without the headaches

In conclusion, managing your digital assets is an essential aspect of investing in the blockchain space. Self-custody, licensed custodians, and storing assets on-chain are some of the best ways to ensure the security and accessibility of your assets. As you look to deploy the best strategy for you, you can look to solutions like Coinbag to simplify your digital asset deployment.