CUSTODY AND WALLET INFRASTRUCTURE

Hot Wallet

A cryptocurrency wallet connected to the internet for immediate transaction signing, used for operational liquidity but subject to higher cyber risk. Institutions limit hot wallet balances and implement real-time monitoring to mitigate exposure.

EXAMPLE

Payment processors like BitPay maintain only 2-5% of assets in hot wallets to facilitate instant settlements, sweeping excess balances to cold storage hourly via automated reconciliation.

Relevant Roles and Functions

On-chain Role
Head of Digital Asset Custody
Function
Institutional Custody Solutions
Key Management
On-chain Analytics
Sanctions Compliance
Transaction Monitoring
Wallet Infrastructure
Wallet Risk Scoring

Related Terms

Cold Storage

The practice of storing private keys on devices not connected to the internet, minimizing exposure to hacking or unauthorized access. Institutional cold storage solutions include hardware security modules and air-gapped vault systems.

Example

Coinbase Custody holds 95% of client assets in cold storage distributed across multiple geographic locations with multi-signature requirements to prevent single points of failure.

Wallet

Software or hardware that stores private keys and enables users to send, receive, and manage blockchain-based assets. Institutional wallets include multi-signature authorization, policy controls, and integration with compliance systems.

Example

Fireblocks provides institutional-grade wallet infrastructure that integrates with banks' existing transaction monitoring and sanctions screening systems before signing on-chain transfers.

Private Key

A secret cryptographic string that authorizes the signing of blockchain transactions and proves ownership of digital assets. Loss or theft of a private key results in permanent, irrecoverable loss of the associated assets.

Example

Institutional custody solutions abstract private key exposure through hardware security modules and multi-party computation, so no single operator can sign unilaterally.

Digital Asset Custody

The safekeeping and administration of digital assets—including private key management, transaction signing, and regulatory reporting—on behalf of institutional clients. It is widely regarded as the foundational control point for institutional participation in on-chain markets.

Example

Northern Trust's digital asset custody service for tokenized fund shares handles key management, NAV reporting, and regulatory compliance in a single integrated platform.