Over the past few months, there has been a subsequent growth in crypto startups providing support services for the industry. One such sector that has witnessed significant growth is the cryptocurrency custody solutions.
Cryptocurrency custody solutions are primarily needed in the crypto ecosystem to provide a safe storage platform for digital currencies and consequently prevent theft through hacking of crypto wallets and exchange platforms. With custodial solutions in place, crypto traders and investors are provided with a piece of mind appreciating that their digital currencies are not only secured but also insured by a trusted third party verified by a central authority.
This piece will look at cryptocurrency custodial solutions, how they have transformed the crypto space by lowering the cases of digital currency loss.
Cryptocurrency Custody Solutions Defined
Cryptocurrency custody solution refers to institutions that safeguard or hold onto assets on behalf of an investor. Unlike traditional banking solutions, custody solutions cannot lend out digital assets to borrowers. They only allow investors to deposit their digital assets on the platform and will secure it on their behalf.
Additionally, several crypto custodial solutions also facilitate crypto trading for institutions and individuals. These solutions can also be leveraged by businesses to streamline the management and storage of digital assets while still ensuring their security and privacy.
In some ways, crypto custody solutions are related to crypto wallets and exchanges. That’s because they also provide storage solutions as well as allow users to make purchases and trade with digital assets. However, these solutions offer several additional features that make them superior over exchanges and wallets.
A crucial feature of cryptocurrency custody providers is that they typically insurer of digital assets safeguarding them from theft. This means that they are responsible for users’ assets, even when the assets are stolen or destroyed. Also, digital assets deposited to custody providers do not earn interest. The depositor is also required to pay custody fees to compensate for the provided insurance and security.
Growth of Cryptocurrency Custody Solutions
The crypto space has been marred with increased thefts and scams, which have surged by more than 400% and hit $1.7 billion from a report by U.S-based cybersecurity firm CipherTrace. From the report. $950 million involved thefts from cryptocurrency exchanges and support services such as wallets representing an increase of 260% up from $266 million in 2017. $725 million represented scams such as exit scams, phony exchange hacks, Ponzi schemes, and fraudulent initial coin offerings. With such an increase in the recorded theft cases, the only solution lies with the cryptocurrency custody solution.
Cryptocurrency is still an underexplored territory, and therefore, there is a need to caution investors from the risk that comes with investing in the sector. While cryptocurrency exchanges and wallets provide some sense of security through the use of private keys as well as other security protocols to safeguard an individual’s digital asset, this security mechanism is quite cumbersome and is also susceptible to hacking.
Custody solutions are more secure and eliminate fears of losing one’s digital assets through hacking, theft of wallets, misplaced, or forgotten private keys, among others.
According to Coinbase, approximately $20 billion worth of cryptocurrency lies uninvested waiting for the establishment of custody services. A research conducted by the Bank of New York Mellon revealed that there is enormous demand in the provision of custody services for secure storage of cryptocurrencies. Custody services will promote the movement of institutional capital into the crypto space. With the growth in demand for cryptocurrency custody services, major banks and cryptocurrency exchanges are looking to test and start rolling out crypto custody solutions.
The significant growth of cryptocurrency custody service providers has further been enhanced by their adherence to set regulations. Depending on the country, there are various regulations that crypto custodians should adhere to when providing such services. For instance, the United States Securities and Exchange Commission (SEC) necessitates that institutional investors who possess customer assets worth $150,000 to put their holdings under the control of an authorized custodian regulated by the SEC.
In Europe, crypto custodians ought to adhere to the Fourth Anti-money Laundering Directive. In Australia, crypto custodians are regulated by ASIC under the Corporations ACT 2001 and must have an Australian Financial Services License (AFSL) to operate.
In Canada, crypto custodians are required to register with the Financial Transactions and Reports Analysis Centre of Canada. Crypto custodians in the U.K. are regulated by the United Kingdom’s Financial Conduct Authority (FCA). The fact that crypto custodians are regulated makes them legit and trustable by crypto investors who are looking to safeguard their digital assets.
Own your own keys and keep your crypto safe with trusted cryptocurrency custody:
“If you don’t own your own keys, you don’t own your cryptocurrency.”
“Keep your funds safe, keep them off exchanges.”
Examples of Crypto Custody Solution Provider
As mentioned above, the crypto custody sector is relatively new and quickly evolving frontier in the cryptocurrency ecosystem. Crypto custodians are still developing their services and products to meet the largely dynamic market demand.
Additionally, crypto investors seeking crypto custodians are still not sure of the features they need most or rather don’t know how to evaluate custodians based on the features they offer. Luckily, the team at Wisecryptos has assessed all the available custodians available in the crypto market right now. Below are some of the already established providers who offer crypto custody solutions you should consider:
1. Ledger hardware wallets
Ledger are the leading cryptocurrency hardware solution of choice.
Ledger Nano X – Keep your crypto secure, everywhere:
The Ledger Nano X is a Bluetooth® enabled secure device that stores your private keys. Make sure all your crypto assets are safe, wherever you go.
Leave your fear of hacks behind: your private keys are stored in a certified secure element and Bluetooth connection is encrypted.
Your accounts can be restored on any Ledger device, using a confidential 24-word recovery phrase.
The Ledger Nano X supports an extensive list (1,100+) of crypto assets, including Bitcoin, Ethereum, XRP, Litecoin and more.
2. Bakkt Custody
Bakkt got clearance from CFTC and launched a physically-delivered daily and monthly Bitcoin futures in partnership with ICE Futures U.S. and ICE Clear U.S. on 28th September 2019. Bakkt Warehouse also provides custody services for physically delivered futures. In addition to providing crypto custody services, Bakkt also facilitates trade and exchange of digital currencies in a regulated environment. Therefore, Bakkt institutional investors confidently exchange fiat and crypto liquidity without fear of going at a loss due to high volatility.
3. Coinbase Custody
Coinbase Custody provides crypto custody solutions and receives $200-400M per week in new crypto deposits from institutions. From there website, Coinbase Custody is a pioneering custodian in offering crypto staking allowing customers to passively earn from their digital assets placed under custody.
Gemini is a cryptocurrency exchange that also offers cryptocurrency custody services since 2016. The platform like Coinbase Custody is regulated by the New York State Department of Financial Services (NYSDFS).
Gemini’s custody accounts come in two forms: A Segregated Custody Account, which is ideal for institutional customers, and Gemini Cold Storage System, where digital assets are separated using unique digital asset addresses. Gemini custody accounts are perfect for clients dealing in mutual funds, hedge funds, and exchange-traded funds which are required by law to secure their digital assets with a licensed custodian.
itBit also offers custody services regulated by the New York State Department of Financial Services. itBit customers’ assets are safeguarded in cold storage and can be verified by the owners on a 24/7 basis. Customers are also provided with auditable and regular reports involving market performance evaluations concerning crypto assets or portfolios. Reports are released on a monthly, quarterly, and yearly basis. Apart from custody services, itBit also offers a variety of services, including exchange services, OTC trading, and consistent crypto market data.
Other crypto custody providers include Aegis Custody, Anchorage, BitGo Custody, Fidelity Custody, and Kingdom Trust, among others.
6. PolySign (coming soon)
Institutional-grade custody for digital assets.
PolySign‘s custody solution supports the full spectrum of digital assets and is designed to scale to trillions under management.
Custody: the biggest problem facing digital assets.
The cryptographic secret unlocks access to all funds. Once the secret is stolen or lost, funds can never be recovered.
PolySign’s digital asset custody platform is a step-function above other solutions.
Leading blockchain architects Arthur Britto and David Schwartz designed PolySign’s solution for securing digital assets.
PolySign was founded in 2017 by a team of world-class experts in both financial services and cryptocurrencies.
Cryptocurrency custodial services are definitely the way to go if you need a long-lasting solution for your digital assets. Crypto custodians safeguard or hold onto assets on behalf of crypto investors and shield them from the risk of losing their assets through theft or loss of private keys.
In the past six months, there has been significant growth in the provision of third-party custodial services, which are currently in high demand in the crypto space, especially by institutional investors. Institutional capital is finding its way to the crypto sector.
From what you have seen above, it is safe to say that the custodial services has been the missing link in connecting crypto investors and fund managers. Through this array, experts predict an inflow of billions in the crypto sector, which is precisely what we need to drive crypto adoption to high heights.
WARNING: We have all heard about exchanges going belly under, Mt Gox of course, exchange owners allegedly dying and taking all private keys with him, exchanges exit scamming, Binance being “hacked”, other big exchange hacks, etc.
It is crucial you don’t leave all your cryptocurrencies on one exchange. Spreading your risk over multiple reputable and insured exchanges is one way to go, another way is by using custody services or by keeping your funds on your own hardware wallet (and keeping this well locked away and for god sake don’t buy a used or ‘pre installed’ one from ebay as your funds will be gone in a flash).