How Do Custodial Exchanges Typically Secure the Private Keys They Hold?

Custodial exchanges use a combination of strategies to secure private keys. The majority of funds are typically held in "cold storage," meaning the private keys are stored on devices that are not connected to the internet, making them immune to online hacking attempts.

A smaller portion of funds is kept in "hot wallets," which are online, to facilitate withdrawals. These are protected by measures like multi-signature schemes, which require multiple authorizations for a transaction, and secure hardware environments.

They also employ strict internal controls and access policies.