Custody & Management Policy — Summary

LocalBitcoins’ approach to bitcoin custody is designed to safeguard and administer customers’ assets in line with the EU Markets in Crypto-Assets (MiCA) regulation. This overview explains, in clear terms, how LocalBitcoins stores and manages bitcoins on behalf of its customers.

What “Custody and Management” Means

Under this service, LocalBitcoins holds and operates customers’ bitcoins for them. LocalBitcoins performs all safekeeping and management activities internally—without outsourcing.

Secure Storage & Bookkeeping

Protecting customers’ bitcoins is the core obligation in our custody and management service. To that end, LocalBitcoins has documented its controls and procedures in a dedicated policy and provided this documentation to the relevant supervisory authority.

Our custody safeguards focus on two areas:

  1. Defense against fraud and unauthorized access.
  2. Protection against LocalBitcoins’ potential insolvency and preventing any use of customers’ bitcoins for our own purposes.

Measures against fraud and unauthorized access

  • Segregation of customer funds and company funds: We use bitcoin wallets reserved exclusively for customers’ holdings, separate from LocalBitcoins’ own assets. Only a small, trained group of employees can access these wallets.
  • Cold-first storage model: At least 99% of bitcoins under custody are stored offline in cold wallets. Only the operational float needed for transfers is kept online in hot wallets.
  • Controls and monitoring: Whether offline or online, assets are protected by ongoing monitoring, layered security measures, and strict internal access controls.

Measures for insolvency protection and misuse prevention

  • Off-balance-sheet treatment: Customers’ bitcoins are not recorded as LocalBitcoins’ assets.
  • Customer-level records: A detailed ledger tracks withdrawals and fees per customer, ensuring each client’s entitlement to funds in the wallets can be precisely determined.
  • Real-time internal accounting: Balances are updated continuously for accurate, transparent oversight.
  • Bankruptcy protection: If LocalBitcoins becomes insolvent, customers’ bitcoins do not form part of the bankruptcy estate.
  • Restricted personnel access: Only selected, trained employees can access customers’ assets.
  • Abuse detection: Internal accounting controls are designed to flag any unauthorized use.

Additional Information for Customers

LocalBitcoins aims for full transparency. Alongside this summary, customers receive:

  • Contract terms (Terms of Service).
  • Balance visibility: Account holders can view their bitcoin balance at any time after logging in.
  • Clear communications: The company promptly and clearly notifies customers of any service disruptions that may affect access to or the safeguarding of their bitcoins.

Liability Limitation

LocalBitcoins is responsible for losses of customers’ bitcoins—or access to them—when such losses are caused by LocalBitcoins. This liability is capped at the market value of the affected bitcoins at the time the loss occurs. Losses beyond our control—such as those stemming from the bitcoin blockchain technology—are excluded.

These limitations are set out in the agreements between LocalBitcoins and its customers. The terms specify when LocalBitcoins is and is not liable, so customers understand the liability framework and their rights if bitcoins are lost.

Because LocalBitcoins maintains granular internal records for each customer’s bitcoins, we can always determine the total amount owed to customers if a loss arises due to LocalBitcoins’ own operations.