Managed Bitcoin Custody
Managed Custody and Responsibility Transfer Risk
This memo is published by CustodyStress, an independent Bitcoin custody stress test that produces reference documents for individuals, families, and professionals.
What Managed Custody Provides
A bitcoin holder decides not to manage custody alone. The holder hires a service to handle the technical work. The service stores keys. The service secures backups. The service processes transactions on request. The holder delegates operations to someone else.
This memo describes managed bitcoin custody as a system under stress. It explains what changes when custody operations move from the holder to a third party. The holder gains operational relief. The holder loses direct control. Third party bitcoin custody creates a different relationship between the holder and the bitcoin.
The question is not whether managed custody is correct. The question is how it behaves when something goes wrong. Managed crypto custody shifts responsibility. The shift changes what the holder can do, what the holder can see, and what happens during recovery or inheritance.
What Managed Custody Provides
Managed custody provides operational execution. A service handles the technical details. The service maintains custody infrastructure. The service manages keys according to its procedures. The service executes transactions when the client requests them.
The holder interacts with the service, not with the bitcoin directly. The holder makes requests. The service fulfills them. The holder sees balances and transaction history. The holder does not see keys, seed phrases, or internal security mechanisms.
Bitcoin managed custody services exist because custody is complex. Key management requires expertise. Security requires ongoing attention. Some holders prefer to pay for this expertise rather than develop it themselves. The service absorbs technical burden in exchange for fees and control.
Responsibility Transfer
Self-custody places all responsibility on the holder. The holder secures the keys. The holder makes every decision. The holder fixes every problem. If something goes wrong, the holder bears the consequences.
Managed custody transfers some responsibility to the provider. The provider secures the keys. The provider maintains the infrastructure. The provider follows its security procedures. If something goes wrong with custody operations, the provider bears some responsibility.
The transfer is not total. The holder remains responsible for choosing a provider. The holder remains responsible for communicating requests correctly. The holder remains responsible for keeping account credentials accessible. Managed bitcoin custody moves technical responsibility while leaving other responsibilities with the client.
A Scenario Where Responsibility Lines Blur
A company uses a managed custody provider for its bitcoin. An employee submits a withdrawal request to a fraudulent address. The employee was deceived by a phishing attack. The provider processes the request. The bitcoin moves to the wrong place.
The company blames the provider. Why did they not catch the fraud? The provider blames the company. The request came through proper channels with proper authorization. The provider followed procedure. The company provided the bad address.
The bitcoin is gone. Both parties point at each other. The service agreement defines responsibility. The agreement says the provider executes valid requests. The request was valid in form but fraudulent in intent. The responsibility line sits in a gray zone. Third party bitcoin custody does not eliminate errors. It moves them to different points in the process.
Process Mediation
Managed custody inserts process between the holder and the bitcoin. A withdrawal requires a request. The request enters a queue. Someone reviews it. Someone approves it. Someone executes it. Each step takes time. Each step follows procedure.
Self-custody has no process. The holder decides to send bitcoin. The holder signs a transaction. The bitcoin moves. The holder acts directly. No one reviews. No one approves. Speed depends only on the holder's ability to execute.
Process mediation changes timing. A holder who needs bitcoin urgently faces the provider's workflow. The workflow may include business hours, review periods, and approval chains. The holder waits while the process runs. Managed bitcoin custody trades immediacy for procedure.
A Scenario Where Process Blocks Urgent Action
A man uses a managed custody service. He needs to move bitcoin immediately to meet a time-sensitive obligation. He submits a withdrawal request at 6 PM on a Friday. The provider's operations team works business hours in a different time zone. His request sits in the queue.
He calls customer support. Support says the request will be processed when the team returns Monday morning. He explains the urgency. Support says they cannot accelerate the process. Security procedures exist for a reason. He misses his deadline.
The provider did nothing wrong. The provider followed its procedures. The procedures did not account for his urgency. The process that normally protects clients became a barrier when timing mattered. Bitcoin managed custody services operate on institutional schedules, not individual emergencies.
Provider Continuity
Managed custody depends on the provider's continued operation. The provider holds the keys. The provider processes requests. If the provider stops operating, the client's access path changes. The client must find a new path to their bitcoin.
Providers can change for many reasons. Business failure. Acquisition. Regulatory action. Strategic exit from the market. Staff turnover. Each change affects the custody relationship. The client's access depends on institutions and people the client does not control.
Continuity risk differs from self-custody risk. Self-custody depends on the holder. Managed custody depends on the provider. Both dependencies can fail. Managed bitcoin custody adds institutional continuity as a requirement for ongoing access.
A Scenario Where Provider Exit Creates Scramble
A managed custody provider announces it will close operations in sixty days. Clients must move their bitcoin to new custody arrangements. A company receives the notice. The company has used this provider for years. The company has no backup plan.
The company scrambles to find a new provider. Due diligence takes time. Contracts take time. Onboarding takes time. The sixty-day window feels short. The company rushes through decisions that normally take months.
The company transfers bitcoin to a new provider before the deadline. The transition works. But the rushed process created stress and consumed resources. The company's custody depended on a provider that chose to exit. The exit was the provider's decision, not the company's. Managed crypto custody includes dependence on business decisions the client cannot control.
Visibility Reduction
Self-custody provides full visibility. The holder sees the keys. The holder sees the backups. The holder knows exactly how the system works because the holder built it. Nothing is hidden from the holder.
Managed custody reduces visibility. The client sees balances and transactions. The client does not see keys. The client does not see internal security procedures. The client does not know exactly how the provider protects assets. The provider describes their approach in general terms. The details remain internal.
Visibility reduction requires trust. The client trusts that the provider does what it claims. The client trusts that security procedures work. The client cannot verify independently. Third party bitcoin custody means trusting without full visibility into how trust is justified.
A Scenario Where Opacity Delays Problem Detection
A managed custody provider suffers an internal security incident. An employee with access to systems acts improperly. The provider detects the issue and begins investigation. The provider does not immediately notify clients.
Weeks pass. The investigation continues internally. Clients see normal balances. Clients process normal transactions. Clients do not know anything is wrong. The provider eventually discloses the incident after determining client assets were not affected.
Clients learn about the incident long after it occurred. They could not have detected it themselves. They had no visibility into internal operations. They trusted the provider to inform them of problems. The provider informed them eventually, on the provider's timeline. Managed bitcoin custody visibility works in one direction. The provider sees the client's requests. The client does not see the provider's internal events.
Inheritance Translation
Self-custody inheritance requires key discovery. Heirs must find devices. Heirs must find backups. Heirs must execute recovery. The path runs through physical artifacts and technical capability.
Managed custody inheritance requires account transfer. Heirs must prove authority to the provider. The provider must verify documentation. The provider must update account ownership or distribute assets. The path runs through formal process rather than artifact discovery.
Managed bitcoin inheritance differs in what heirs must do. Heirs do not need to find seed phrases. Heirs need to provide legal documents. Heirs do not need technical capability. Heirs need to satisfy the provider's verification requirements. The inheritance burden shifts from technical to procedural.
A Scenario Where Inheritance Proceeds Through Provider Process
A woman dies with bitcoin held by a managed custody provider. Her son is the heir. He contacts the provider. The provider sends him a list of required documents. Death certificate. Probate filing. Proof of identity. Executor appointment letter.
He gathers the documents. He submits them. The provider reviews them. The provider asks clarifying questions. He answers. The provider's legal team approves the transfer. The account moves to his name. He can now access the bitcoin.
The process took two months. The process required no technical knowledge. He did not need to understand wallets or keys. He needed to understand paperwork and respond to requests. Managed bitcoin inheritance ran through the provider's procedures. The provider guided the process. The heir followed.
What This Memo Describes
This analysis covers managed bitcoin custody as a reallocation of risk and responsibility. It explains responsibility transfer, process mediation, provider continuity, visibility reduction, and inheritance translation. Each dimension shows how managed custody differs from direct self-custody.
The observations do not assert that managed custody is appropriate or inappropriate. They describe how the structure behaves under stress. Different holders face different circumstances. The same structure creates different outcomes depending on the provider, the service agreement, and what stress arrives.
Summary
Managed bitcoin custody shifts technical execution from the holder to a service provider. The holder gains operational relief. The holder loses direct control and full visibility. Responsibility transfers partially but not completely. Errors can still occur at new points in the process.
Process mediation inserts workflows between the holder and the bitcoin. Provider continuity becomes a dependency. Visibility into custody operations reduces. Bitcoin managed custody services change how inheritance works, converting artifact discovery into formal process.
This document addresses managed crypto custody as a structural choice with specific tradeoffs. Third party bitcoin custody provides and removes different things than self-custody. The observations explain what managed custody changes without prescribing whether those changes serve any particular holder's needs.
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