Most losses in Bitcoin trace back to custody, not to the technology. The question of who holds the keys, and under what rules, is the central operational decision of a Bitcoin treasury. This guide compares the main options.
Who this is for
CFOs, IT and security leads and anyone who will be responsible for how the company’s Bitcoin is held.
The core idea
Bitcoin is controlled by private keys. Whoever can use the keys controls the funds. Custody design is therefore about answering three questions: who holds the keys, how many must agree before funds move, and what happens when something goes wrong.
The three main models
| Model | How it works | Strengths | Weaknesses |
|---|---|---|---|
| Single key, self-held | One person or device holds the key | Simple | One loss or theft ends the treasury. Not suitable for a company |
| Multi-signature self-custody | Several keys held by different people and places, with a threshold such as 3 of 5 needed to move funds | No single point of failure, no third-party dependency | Needs procedures, training and regular drills |
| Regulated custodian | A licensed provider holds the assets on your behalf | Professional security, insurance options, audit reports | You depend on the provider, and their failure or legal problems become yours |
Many companies use a hybrid, for example a custodian that holds some of the keys in a shared-approval arrangement, so that neither the company nor the provider can act alone.
How to choose
Ask these questions in order:
- How much are we holding relative to our reserves? Larger amounts justify more professional arrangements.
- Do we have people who can run key procedures reliably? If not, a custodian reduces operational risk.
- What do our auditors, insurers and regulators expect? Some require a regulated custodian.
- How will we recover if people leave or devices fail? The answer must be written and tested.
- What would a custodian failure cost us? Check their licensing, reserves, insurance and legal structure, and what happens to your assets in insolvency.
Setting up multi-signature custody
- Decide the threshold and the number of keys, for example three of five.
- Assign keys to different people in different locations, ideally on different types of hardware.
- Write the approval procedure, including who proposes, who approves and what is verified before signing.
- Make backups of each key, store them offline in separate places and record where they are.
- Run a recovery drill: move a small amount, restore from backups and confirm it works.
- Plan for succession: who takes over each role, and how keys are rotated when someone leaves.
Common mistakes
- Leaving funds on a trading platform.
- Keeping all backups in one location.
- Never testing recovery.
- No plan for when a key-holder resigns.
- Choosing a custodian without checking licensing, insurance and insolvency treatment.
Checklist
- Custody model chosen and documented
- Keys held by different people in different places
- Approval procedure written
- Backups made and verified
- Recovery drill completed
- Succession plan for each key-holder
