What a private key is and why it matters
Every blockchain address is controlled by a private key, a secret number that signs transfers. The network does not ask who you are: it checks the signature. If the signature is valid, the transfer goes through and cannot be reversed.
The seed phrase, 12 or 24 words long, is the backup that rebuilds those keys. Losing it means losing access; sharing it means handing over the funds.
Self-custody: you hold the keys
You keep your keys on a hardware wallet or a device you control. You depend on no one: no company can freeze your funds or go bankrupt with them.
In exchange, every responsibility is yours: backups, physical protection, mistakes when sending to the wrong address and something few people plan for, inheritance. If no one else knows how to access them, those assets are lost with their owner.
Exchange custody: convenient, with counterparty risk
When you leave your assets on an exchange, the platform controls the keys and you hold a balance in your name. It is practical for trading, but you depend on the exchange’s solvency, its security and its willingness not to freeze withdrawals.
In November 2022, FTX, then one of the largest exchanges in the world, filed for bankruptcy. The SEC charged its founder with diverting customer funds to his trading firm, Alameda Research, and in November 2023 a jury found him guilty of fraud. Thousands of people found out that the balance on their screen was not backed by assets.
Segregated custody through a manager
In this model, a manager runs the investment, but each investor’s assets are kept apart from the manager’s and from other clients’, in the structure the contract sets out. If the manager runs into trouble, investors’ assets should not end up mixed with the manager’s debts.
The quality of the model is in the details: who holds custody, how many approvals a transfer requires, how you verify your positions and what the contract says if the relationship ends.
At Daleki Capital
We use segregated custody under contract. Each investor’s contract specifies the custody and you receive periodic position reports, so you know what is held and where.
The three models, side by side
None is perfect. The useful question is which risk you prefer to carry and who answers for it.
| Model | Who controls the keys | Main risk | Suits |
|---|---|---|---|
| Self-custody | You | Loss, theft or your own error | People who master the operation and plan their inheritance |
| Exchange | The platform | Bankruptcy, hacks or frozen withdrawals | Short-term operating balances |
| Segregated custody with a manager | The custodian named in the contract | Operational or custodian errors | People who prefer to delegate management under written rules |
Questions for any custodian or manager
Ask them before you transfer anything and get the answers in writing.
- Are my assets kept apart from the manager’s and from other clients’?
- Who can authorize a transfer, and how many approvals are needed?
- How can I verify my positions, and how often?
- What happens to my assets if the manager closes or the contract ends?
- Which risks does the custody model not cover?
Terms in this guide
Sources
Educational content. Not an investment recommendation or a public offering of securities. Investing in digital assets carries the risk of total loss. Risk disclosures