Self Custody vs Bank Custody: The Future of Bitcoin
The Importance of Custody in Bitcoin Transactions
Bitcoin is a decentralized digital currency that operates without a central bank or administrator. Therefore, the responsibility of protecting the asset lies on the owner. With the growing interest and adoption of cryptocurrency, the issue of custody is becoming an increasingly important aspect of bitcoin transactions. Self-custody and bank custody are two popular ways to protect bitcoin assets.
Self-Custody Is Not the Ultimate Solution
Self-custody is the act of storing your bitcoin by controlling your private keys. A hardware wallet is an example of self-custody. This is an effective security measure, but according to Michael Saylor, this does not mean banks won’t hold bitcoin in custody in the future. This is because some institutions or government agencies will not want to take the responsibility of managing and securing the assets themselves.
“Large institutions, churches, corporations, and so on will need an infrastructure of custodians and banks. Therefore, I think there will come a time when all major banks will hold bitcoin,” Saylor says.
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Banks are crucial for the safety of an individual’s private keys or wallet while still allowing for ease of access. Saylor also notes that self-custody may not be the logical solution for certain groups of people, including children who inherit bitcoin and the elderly who may not have the ability to manage cryptocurrencies. In such cases, a trusted institutional custodian is the more practical choice.
MicroStrategy’s Bitcoin Holdings
MicroStrategy, the company founded by Saylor, has been a keen supporter of bitcoin. The company made headlines in 2020 for becoming the first publicly traded company to invest a significant amount of money, initially $425 million, in bitcoin. Later, MicroStrategy invested another $50 million in bitcoin in December 2020. To date, the company has purchased 140,000 bitcoins, which is close to 1 percent of all bitcoin that will ever be mined.
However, critics are concerned with the high number of bitcoins that the company owns. Some even argue that owning such a large amount of the total bitcoin supply undermines the currency’s decentralized nature. Yet, MicroStrategy still has to purchase a significant amount of bitcoin to own a large share of the total bitcoin supply.
The adoption of bitcoin by banks is still a relatively new concept. However, Saylor believes that it is inevitable that major banks will hold bitcoin in the future. The increase in institutional investors’ interest in cryptocurrency, coupled with the growing adoption of digital currencies, has made custody an important part of bitcoin transactions. While self-custody may be an effective measure, it is not practical for everyone. The future of bitcoin is likely to include both self-custody and bank custody, and how it adapts and regulates may be the ultimate test of its longevity as a currency.