Cryptocurrency and digital asset trading is a quickly emerging business. Even small investors are getting in on the action with dedicated cryptocurrency and decentralized finance plays on a pretty large and complex market.
However, not all exchange and trading platforms are set up the same way. There are some critical things that new investors should know when they come to the table.
One of these is the difference between custodial and non-custodial trading options. The differences between these two types of platforms can make all of the difference in how you work with your digital assets over time.
Custodial and Non-Custodial Trading
A custodial trading arrangement is where you send your assets to a particular exchange, and they get held there for the duration. In other words, the keys and access to the assets are kept with the custodial vendor while the transaction is in play.
It’s important to note that experts recommend taking your assets out of a custodial arrangement as soon as possible after the transaction and storing them in your own cold storage digital wallet.
That has a big connection to the security value of noncustodial trading, as we’ll go into here. Yes, vendors can put all kinds of effective security in place, but none of them are as good as disconnecting assets from the Internet entirely. Of course, the owner has to make sure the physical storage media and key don’t disappear somewhere, but for the ultimate digital security, holding on-site is best.
With a non-custodial trading setup, investors do not send asset keys to the vendor’s server at all. Instead, they keep all of their assets and keys on their own side, and the vendor uses them to achieve the investments that the asset holder wants to make. So that’s essentially that goal of keeping assets on your own site, not sending them to a vendor or service provider platform.
Generally speaking, the goal is to verify assets that are in the end user’s wallet, so that the custodial process does not need to take place. Experts point out that this eliminates various kinds of counterparty risk and also allows for more diverse trading with arbitrage. That in turn has led to a new model for the platforms that drive BTC and crypto exchanges, or the trading of NFTs or any digital asset.
With this in mind, new traders owe it to themselves to check out non-custodial trading arrangements like Atani, where the company’s liquid aggregator system uses APIs to direct trading without custodial asset holding or putting the keys on the client’s server.
That also eliminates the walled garden of a single exchange point of transaction. Atani’s founders have done a lot of public interviews talking about how this process is set up, and how non-custodial trading can work. This is crypto 101 for those who want to get involved in utilizing their crypto assets for exchange transactions and different sorts of capital management. Make sure you do your due diligence, not just on the digital assets themselves, but on how to handle them safely in this new world of connected crypto.
On the Flipside
- Both custodial and non-custodial platforms have their pros and cons.
- Do your own research and consider your specific personal needs before choosing the best one.