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Heads up: The CLARITY Act is not law. Statuses are rules-based estimates from public evidence, not legal or financial advice.

Crypto custody, explained

Owning a token and controlling it aren't the same thing. Custody decides who can move your coins, and what happens if a platform fails.

At a glance

Who controls the keys controls the coins
  • On an exchangeYou rely on the company
  • Regulated custodianTrust company or bank-type charter
  • Self-custodyYou hold the keys
  • InsuranceExchange crypto isn't FDIC or SIPC insured

Exchange or app

The company holds the keys for you.

  • Convenient: buy, sell and send in one place
  • If the company fails, you depend on it (balances aren't FDIC/SIPC insured)

Hot wallet (software)

You hold the keys in an app on an internet-connected phone or computer.

  • No platform risk
  • Keys live on a device that's online
  • Lose the keys or recovery phrase and the coins are gone

Cold wallet (hardware)

You hold the keys on a dedicated device that keeps them offline.

  • No platform risk
  • Keys stay offline
  • Lose the device and recovery phrase and the coins are gone

Simplified comparison. A regulated custodian (below) is a fourth option used by some platforms.

Three ways to hold crypto

  1. On an exchange or app. Convenient, but you rely on the company. Balances aren't FDIC or SIPC insured (as exchanges disclose, e.g. OKX US licences ↗).
  2. With a regulated custodian. Some platforms hold assets through a trust company or bank-type charter. For example, NYDFS lists Coinbase Custody Trust and Gemini Trust Company with trust charters, and Kraken Financial is a Wyoming SPDI.
  3. Self-custody. You hold the keys in a hardware or software wallet. No platform risk, but if you lose the keys, the coins are gone.

Proof of reserves: useful, but limited

A proof of reserves shows that a platform held certain assets at a point in time, sometimes with a Merkle tree so you can check your balance was included. It usually doesn't prove the absence of other liabilities. Our exchange checker shows who publishes one and how recently.

What the CLARITY Act would change (House-passed text)

  • Segregation: digital commodity exchanges must treat customer assets as belonging to the customer, account for them separately, and not commingle them (Sec. 404).
  • Qualified digital asset custodians: custody must sit with supervised custodians (federal or state banking, trust, CFTC/SEC, or adequate foreign oversight) (Sec. 405).
  • Insolvency disclosures: brokers must explain how your crypto would be treated if they fail (Sec. 311).
  • Self-custody protected: individuals keep the right to use their own wallets and transact peer-to-peer for lawful purposes (Sec. 22).

H.R. 3633 text (govinfo) ↗ · The CLARITY Act is not law.