_On our mission to_ **_build the future of money_**_, we want crypto users to be educated and make informed decisions. In this three-part series, we will cover the most important factors to consider when choosing how, why, and who to store your crypto with for optimal safety and security. Today we start with the basics, the_ **_three tiers of crypto custody_**_._

**Part One: The Basic Tiers of Crypto Custody**

Crypto Custody is a broad term that can be applied to a number of different solutions for cryptocurrency storage. People have many choices when it comes to storing their crypto, and the connectivity of those solutions poses unique concerns for customers. Solutions range from self-custody options like a hardware or software wallet, to third-party, offline storage.

Custodying cryptocurrency (such as bitcoin, litecoin, ether, and many others), as opposed to other assets like cash, securities, or objects, requires a new kind of infrastructure — one that differs from the traditional paper-and-safe approach in banking.

Custody needs also vary. For instance, some investors might need to infrequently access or move their cryptocurrency compared to others who trade more frequently. Some investors might prefer to self-custody, while some institutions might require a third-party solution. There are three tiers of crypto custody available.

1\. **Self-custody: Build your own solution**

There are many ways to self-secure cryptocurrencies. Approaches can range from using consumer hardware wallets, to creating complex setups for the duplication, storage, and backup of your printed-out private keys (private keys are akin to your “password” — they allow you to access your crypto funds).

Many people want complete control of their cryptocurrency, and self-custodying provides a good solution. However, consider the difficulty in managing passwords and the frequency with which you may have a password reset performed. When dealing with self-storage and private keys there are no resets, a lost key is gone forever. Self-custodying, like keeping cash in your physical wallet or locked in drawer, poses its own risks. There is no third-party involved to manage that risk (or your funds) if you were to lose access to your keys, experience a destructive event like a fire or power outage, or pass away unexpectedly.

Holders should consider their access to software updates, as well as their personal capacity to correctly backup, restore, and implement geographic redundancy. Individuals should also consider how family members or intended beneficiaries would recover funds in emergency situations.

2\. **Partial custody: “Wallet plus” solution**

An emerging option in the cryptocurrency custody market is a self-managed wallet that offers some level of third-party assistance and related institutional controls or protections. Such an option may align to the needs of certain retail or high-net-worth investors who want to control their holdings, but also desire some level of assurance and institutional protections shy of full third-party management.

“Wallet plus” solutions scale up from basic hardware wallets by applying protocols such as two-factor authentication (or other identity verifications) and/or basic multisignature protections, where the third-party possess a key for co-signing the customer’s transactions.

This amounts to a form of split or partial custody, in which the customer and the third party are generally required to cooperate as part of the signing process. However, the exact amount of control either party has to sign the transaction without the other party — such as in the event of an emergency — depends both on the legal arrangement between customer and provider and the specific key management model of the custody solution.

Customers should consider (and ask about) the potential for third-party access and/or movement of their funds without their key. They should also be mindful of how a “wallet plus” provider handles software upgrades and practical concerns such as backup, recovery, and identity verification.

3\. **Third-party custody: Managed solution**

Third-party custody solutions allow customer funds to be held and managed entirely by a solutions provider. The user entrusts their assets to the custody provider, who is then the only entity acting on the customer’s instructions (the customer is not involved as a direct signing authority). Service level agreements (SLAs) dictate the terms and timing conditions regarding the storage, access, and movement of customer funds by the third party.

Third-party solutions are best suited to investors and institutions, such as asset managers, hedge funds, and/or high-net-worth individuals. They are the only solutions capable of offering bank-level protection for crypto security and safety, as they provide the most robust level of third-party control. That said, third-party custody solutions in the market today vary drastically in terms of what they offer (as we’ll discuss in part two of this blog series).

Customers also have the option to use multiple third parties (full-custody or wallet-plus) if they want two or more providers involved to verify instructions and move funds.

We know that there are a lot of products out there that market security, or offer low fees. We believe a third-party custody solution provided by a Qualified Custodian is the best way for institutions to store cryptocurrency.

Keep a lookout for our next two posts in this series. In part two we will dive deeper into institutional-grade custody solutions. In part three we will focus on questions and considerations when choosing a crypto custodian.

For more information, download our [Guide to Crypto Custody](http://bit.ly/2kAnkIU). We will also be hosting a [webinar](https://gemini.com/custody/whitepaper/) on October 7, 2019 at 12:00pm ET to discuss the state of crypto custody. Please join us!

Onward and Upward,

Brian KimJohnson, Software Engineer, Wallet Lead

The Three Tiers of Securely Storing Your Crypto Assets

Last month, we upgraded our wallet infrastructure that handles Bitcoin transactions, which delivered major improvements to our customers. This was the completion of a year-long effort to support new cryptocurrencies, improve customer experience, and adopt best practices for network usage. We wanted to share more about our overall wallet infrastructure project and the decisions made along the way.

Our team custom-built the first Gemini wallet — a safe, secure wallet and signing infrastructure — around market conditions in 2014. As the market evolved so did our needs: we needed software capable of supporting a fee market, multiple networks, and multiple cryptocurrencies.

We sought out new tools and partnered with [Chris Stewart](https://twitter.com/Chris_Stewart_5), the developer of bitcoin-s, to add support for each of our target cryptocurrencies. In 2018, we launched support for Zcash, Litecoin, and Bitcoin Cash using a more robust, modernized crypto wallet infrastructure.

After debuting these new cryptocurrencies on Gemini, we turned our focus to migrating Bitcoin.

As part of the upgrades this year, we introduced support for Segregated Witness (SegWit) addresses and transaction batching. As our customers may have noticed this means that SegWit addresses — which begin with _bc1_ — can now be used for Bitcoin deposits and withdrawals. Both of these improvements required end-to-end integration through our online and offline signing systems (along with many other efforts).

Our decisions about SegWit and batching were not made lightly. Building trust in cryptocurrencies as an asset class — and in Gemini as a platform — motivates every product choice we make. This is especially true of changes that affect our end customer’s experience, as these wallet updates do.

**Understanding SegWit**

The SegWit protocol update, which activated in late 2017, changed the way information is stored and processed on the Bitcoin blockchain.

SegWit allows digital signature information to be stored separately (or _segregated_) from its transaction data. Without signatures, Bitcoin transactions weigh around 30–40 percent less, thus taking up less “block space” on the network and reducing the transaction fee. As block space is limited, any decrease in transaction size allows for more transactions per block and greater overall throughput in the network.

Our choice to use native SegWit addresses was based on block space savings as well as safety concerns. Specifically, native SegWit addresses work _only_ on the Bitcoin blockchain — they do not work for other cryptocurrencies. On the other hand, however, cryptocurrencies other than bitcoin can be sent to a legacy (non-native SegWit) address, which can cause loss of funds. Some other Bitcoin exchanges and custodians have offered partial SegWit support (withdrawals and legacy P2SH-style addresses) since early 2018, but **_Gemini is the first major exchange to launch full support of SegWit_**, complete with native SegWit deposit addresses. We think it’s the right time to make this change, though there will still be some growing pains. Notably, while some block explorers are capable of tracking native SegWit addresses, the support varies widely from one solution to another.

These considerations, among many others, factored into Gemini’s decisions about when and how to launch SegWit support.

**Realizing the Benefits**

Our team views SegWit as a positive step forward for crypto and the broader **_future of money_**. As SegWit’s use, support, and adoption grows, it will help reduce fees, wait times, and network congestion. Critically, SegWit transactions lay the groundwork for more advanced technologies; of which the Lightning network is the most well known.

We believe SegWit will become the standard, and in doing so, will create extensive benefits for all participants on the Bitcoin network.

Given the level of community adoption — and ecosystem support — we now recommend that all Gemini customers move to using SegWit addresses. After extensive testing and development, we know that launching SegWit support is the right decision for our customers at the right time. Start using SegWit addresses to support our mission and our commitment to building a better Bitcoin experience and the **_future of money_**.

Onwards and Upwards,

Brian KimJohnson, Software Engineer

Brian KimJohnson

ARTICLES BY Brian KimJohnson

The Three Tiers of Securely Storing Your Crypto Assets

Gemini Upgrades Wallet with Full Support of SegWit

A simple, secure way to buy and sell cryptocurrency