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Quantitative Finance · Glossary

What is Self-custody, hot wallet, cold wallet, multi-party computation?

Also known as: self-custody · hot wallet · cold wallet · multi-party computation

Definition 24.4 Markets III: Commodities, Energy and Crypto · Chapter 24 — The Crypto Trading Business

Self-custody is holding crypto assets under private keys the owner controls, rather than as a balance at a venue or custodian. A hot wallet is one whose keys are on internet-connected systems, able to sign at once; a cold wallet is one whose keys are kept offline, so that signing requires a deliberate offline process. Multi-party computation (MPC) is a cryptographic method by which several parties, each holding a share of a key, jointly produce a signature without the key ever existing in one place.

A trading firm’s custody chain: assets move out of cold storage only through multi-party approval, hot wallets hold what the day needs, and excess balances on venues are swept back. Schematic.
Figure 24.4. A trading firm’s custody chain: assets move out of cold storage only through multi-party approval, hot wallets hold what the day needs, and excess balances on venues are swept back. Schematic.
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