Written by
Sagun Garg
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October2024 - BTC | Risk Profile and Different Custody Types?
| Client Type | Custodial Option | Risk Profile (Low to High) | Custody Control | Security | Scalability | Example Use Case |
|---|---|---|---|---|---|---|
| Institutional Investor | Qualified Custodian | Low Risk | No control (custodian-held) | Very high (insured, regulated, compliant) | High (fully managed by custodian) | Large institutions needing regulatory compliance and secure storage |
| Enterprise (e.g., VC or Hedge Fund) | Multi-sig with HSM | Moderate-Low Risk | Shared control (multi-sig) | Very high (hardware security, regular audits) | Medium-High (requires setup) | Companies managing corporate or venture custodial wallets |
| Self-Custody Expert | Hardware Wallet | Moderate Risk | Full control (hardware) | Medium-high (physical security concerns, single point of failure risk) | Low (manual scaling required) | Experienced users securing large BTC holdings with physical hardware |
| Tech-Savvy Individual | Software-Defined HSM | Moderate Risk | Full control (software-based) | High (segmented network zones, secure software) | Medium (complex setup) | High-net-worth individuals or tech-savvy entities using software-defined hardware security modules |
| Small Business | Multisig Wallet | Moderate-High Risk | Shared control (multiple signers) | Medium-high (multi-factor security) | Medium (requires manual management) | Small companies with multiple signers managing BTC collectively |
| Sophisticated Investor | Multi-sig Wallet | Medium Risk | Shared control (multiple keys) | Medium-high (requires technical expertise) | Medium (manual scaling needed) | Experienced investors securing funds through multi-signature schemes |
| Advanced Retail User | Self-Custody with Ledger | Moderate-High Risk | Full control (hardware-based) | Medium-high (secure but requires physical access) | Low (manual scaling) | Retail users storing Bitcoin offline in a hardware wallet |
| Casual Retail User | Self-Custody Software | High Risk | Full control (software-based) | Medium (user-dependent security, software vulnerabilities) | Low (difficult to scale) | Casual users managing small amounts of Bitcoin through software wallets |
| Inexperienced Retail User | Exchange Custody | Very High Risk | No control (third-party) | Low (exchange hacks, counterparty risk) | High (managed by exchange) | Individuals trusting exchanges for Bitcoin storage but vulnerable to hacks or failures |
Explanation of Columns:
- Client Type: The type of client using the Bitcoin custodial option.
- Custodial Option: The method of Bitcoin custody chosen by the client.
- Risk Profile: The overall risk associated with that custody option (low to high).
- Custody Control: How much control the client has over their Bitcoin.
- Security: Level of security associated with the custody option.
- Scalability: How easy it is to scale the custodial solution for larger amounts or more users.
- Example Use Case: The typical scenario in which this custodial option might be used.