Secure client-side cryptocurrency custody with complete control. A crypto custody solution for funds trading on multiple exchanges with multi-signature. Custodians safeguard digital assets by ensuring that investors' private keys are maintained securely. This is achieved by either storing the. These custody services will facilitate further growth in the use of cryptocurrencies and other digital assets for multiple purposes, including decentralized. UNIT 1 THE BASICS OF SAVING AND INVESTING

Crypto custodians are essential for the widespread adoption of digital assets. To this day, many institutional investors stay away from buying digital assets because of the lack of security. Institutions that manage large amounts of money such as hedge funds, pension funds, investment banks and family offices, are required by regulation to have a custody partner to keep their clients' money safe.

As more institutional investors started to dabble in digital assets and companies like MicroStrategy began to place large amounts of cryptocurrency on their balance sheets, the demand for crypto custody services skyrocketed. Read more: Buying Your First Crypto? Simply put, crypto custody means securing the private key that proves you own of the funds held within your crypto wallet. In traditional banking, all custodians are financial institutions, as required by law.

With crypto, however, holders have the opportunity to become their own custodians. Using gold bars as an analogy, you can either store them under your bed to keep them safe yourself or pay a third-party custodian to lock them in a vault protected by security guards. With that in mind, there are two main types of crypto custody for you to know. Self-custody As discussed, self-custody is when you personally hold the private key for your own wallet. This means you are the only one who can prove ownership of your funds and access your holdings.

With great power, however, comes great responsibility. Being your own custodian means having complete control over your wallet, but it also means you bear all the risks too. If you lose access to your physical device cold wallet or forget the private key, your crypto will most likely be gone forever. Why custody is so important in the cryptocurrency market Asset security and transaction efficiency are common requirements for most investors, whether they be single investors, family offices or large institutions.

Crypto custodians play a vital role in achieving both of these objectives. With the amount of value beginning to accumulate in the digital asset space, the safeguarding of this wealth begins to take on a new priority. It should also not be forgotten that digital assets are, by nature, more vulnerable, which means that crypto custodians play a key role in limiting the associated risks.

Over the past few years, family offices have been increasingly targeted by cybercriminals so it would make sense for this sector to consider the services of a third-party custodian when exploring crypto investment. Options for crypto custody Lets first define a few common crypto terms that are used in this section: A public key is a long numeric code that is cryptographically derived from a specific private key and is publicly available. A public key allows you to receive cryptocurrency transactions.

A private key is a randomly generated binary number that is used to encrypt and decrypt information and is only made available to the originator of the encrypted content. A private key gives you the ability to prove ownership or access the funds associated with your public address. There are many custody options available to both individual investors and institutional players, falling within three main categories: Self custody: These include hardware, software or paper wallets in which the digital asset investor independently stores private keys.

Exchange wallets: Control and management of public and private keys are handed over to an exchange, but the investor maintains access via an online wallet. This is achieved by either storing the assets online, a method called hot storage, or offline, known as cold storage, or through a multiple approval approach, known as multi-signature and smart contract wallets.

Hot storage vs cold storage? The key benefit of hot storage is also its downside. Its connectivity to the internet provides investors with ease of access to digital assets but this convenience also leaves it vulnerable to cyber security threats. Additionally, online custodians often restrict access to the private key. Cold storage holds keys offline which maximises security but does not provide an efficient user experience.

Either way, projections indicate a significant increase in family office investment into cryptocurrency over the next few years and appropriate measures need to be taken by the family office to ensure adequate risk management. Remember that the digital asset space is still quite new and is certainly very volatile. Partnering with the right crypto custodian is therefore a wise call to make before you take the plunge.

Four things to consider when choosing a crypto custodian Selecting the right custodian is not an easy decision and should not be taken lightly. Here are some important questions that need to be asked when choosing a crypto custodian: Does the custodian have the right credentials and is it governed by regulation? Trust is a hugely important consideration. Your custodian needs to provide solid credentials and confirm their compliance with appropriate regulations.

What level of technical expertise does the custodian have? A technical review of a potential custodian is always recommended. Certain standards need to be in place and adhered to by a custodian in order to demonstrate technical expertise. Systems need to be reliable and aligned to best-practice cryptographic standards.

HOW DO I GET A BITCOIN ADDRESS

With significant capital to invest and a long-term horizon, family offices are expected to not only ride the crypto-wave but propel it to new heights as they diversify their assets and look to new stores of wealth. The combination of rising inflation and low-interest rates are also contributing factors to this projection. However, the risk, volatility and regulatory uncertainty that is associated with the digital asset market requires family offices to approach this investment with some caution.

These custodians are temporarily entrusted with assets and are expected to minimise the risk of fraud, theft or loss to those assets. In line with accelerating investment into the crypto space, the demand for digital asset custodianship has grown tremendously. However, this has proven to be a space that is vastly different from traditional asset custodianship, hence the plethora of new players and technologies that are emerging all the time.

Through safe key management, digital assets are cryptographically secured and the custodian, therefore, ensures that the asset cannot be accessed by any other party. For a family office to have transactional access to an asset, both a public and private key needs to be used. Why custody is so important in the cryptocurrency market Asset security and transaction efficiency are common requirements for most investors, whether they be single investors, family offices or large institutions.

Crypto custodians play a vital role in achieving both of these objectives. With the amount of value beginning to accumulate in the digital asset space, the safeguarding of this wealth begins to take on a new priority. It should also not be forgotten that digital assets are, by nature, more vulnerable, which means that crypto custodians play a key role in limiting the associated risks. Over the past few years, family offices have been increasingly targeted by cybercriminals so it would make sense for this sector to consider the services of a third-party custodian when exploring crypto investment.

Options for crypto custody Lets first define a few common crypto terms that are used in this section: A public key is a long numeric code that is cryptographically derived from a specific private key and is publicly available. A public key allows you to receive cryptocurrency transactions. A private key is a randomly generated binary number that is used to encrypt and decrypt information and is only made available to the originator of the encrypted content.

A private key gives you the ability to prove ownership or access the funds associated with your public address. There are many custody options available to both individual investors and institutional players, falling within three main categories: Self custody: These include hardware, software or paper wallets in which the digital asset investor independently stores private keys.

Exchange wallets: Control and management of public and private keys are handed over to an exchange, but the investor maintains access via an online wallet. This is achieved by either storing the assets online, a method called hot storage, or offline, known as cold storage, or through a multiple approval approach, known as multi-signature and smart contract wallets. Hot storage vs cold storage? The key benefit of hot storage is also its downside.

Its connectivity to the internet provides investors with ease of access to digital assets but this convenience also leaves it vulnerable to cyber security threats. Additionally, online custodians often restrict access to the private key. Cold storage holds keys offline which maximises security but does not provide an efficient user experience.

Either way, projections indicate a significant increase in family office investment into cryptocurrency over the next few years and appropriate measures need to be taken by the family office to ensure adequate risk management. Remember that the digital asset space is still quite new and is certainly very volatile. Partnering with the right crypto custodian is therefore a wise call to make before you take the plunge. Holding the cryptographic access key to a unit of cryptocurrency is an electronic corollary of these traditional safekeeping activities.

Banks that engage in custodial cryptocurrency services may provide a wide range of services for their customers. The OCC was established under the National Currency Act of later known as the NBA , and is responsible for the creation, organization, and administration of a system of nationally chartered banks to promote a uniform national currency fiat currency. In the time since its inception, the OCC has been the line-drawing authority on permissible and impermissible banking activities.

Therefore, it is paradoxical that the OCC has recently been such a proponent of merging the banking and cryptocurrency industries. In Interpretive Letter , the OCC determined that safekeeping and custody of cryptocurrency assets is similar to safekeeping and custody of other electronic assets—particularly assets like securities, which evolved into an electronic form.

On that basis, the OCC concluded that banks may provide custody services to electronic assets i. This is based on a flawed premise. The OCC then concludes that because custodial services evolved from traditional safekeeping, custody of electronic assets is likewise permitted.

For example, securities, which constitute much of the custody industry, started as a physical asset and evolved into a wholly electronic industry. Cryptocurrency exists exclusively online. By encompassing cryptocurrency safekeeping and custody with previously approved electronic safekeeping services, the OCC uses a tactic it has used before — bootstrapping. Overall, what the OCC misses by its oversimplified analysis is that providing custodial services for cryptocurrency and other similar digital assets differs vastly from previously expanded custody services.

Therefore, the OCC has not simply opened the door to a safe space for cryptocurrency enthusiasts to hold their Bitcoin; they have also exposed the banking sector to the myriad of risks that come from engaging with the cryptocurrency sector.

However, legacy banks are not the only entities that may be interested in providing such services. A national trust bank charter differs from a national bank charter in that it is limited to fiduciary operations, it may or may not be insured by the Federal Deposit Insurance FDIC , and it may not take deposits. As Interpretive Letter specifies in footnote 31, national banks do not need fiduciary or trust powers to conduct cryptocurrency custody activities.

In general, custodial services for securities expose banks to four different types of risk: operational risk, credit risk, market risk, and liquidity risk. In terms of operational risk, there are many risks that banks will need to account for, including: implementation risks resulting from the necessary internal changes, uncertain legal risks arising from the current patchwork regulatory landscape, risks of technological vulnerabilities, network governance i.

Liquidity risks arise when banks cannot convert crypto-assets into fiat currency with little or no loss of value. Market risk arises because of the volatility in the pricing and valuation of crypto-assets, which is in sharp contrast to the minimal market risk a custodian normally faces. Further, if a bank in a custodial capacity acts as an investment advisor to cryptocurrencies that are labeled as securities, it may be exposed to significant credit and counter-party credit risk because it may be difficult to assess the risk of the trade being legitimate, and the banks could be on the hook via indemnity provisions in the custodial arrangement.

In fact, banking regulators themselves continue to struggle with how to categorize and regulate cryptocurrency. And this is just within the United States. Cryptocurrency regulation differs wildly across jurisdictions. It will be difficult for banks to custody cryptocurrency when the broader regulatory treatment of crypto-assets is so uncertain and in flux. For example, when a Consumer Financial Protection Bureau CFPB task force recently recommended the CFPB issue licenses to non-depository institutions that provide lending, money transmission, and payments services, the then Acting-Comptroller Brooks responded with a not-so-subtle statement that the OCC has the sole authority to designate national charters to such institutions.

Would they be subject to enforcement actions for failure to comply? It seems too early to answer these questions, and therefore too early for banks to confidently make the call on whether to provide custodial services for cryptocurrency.

Lindsay Cooper is a J. Courts acknowledged the elusive and evolving nature of the business of banking as early as in Curtis v. Leavitt, 15 N. Curtis v. Variable Annuity Life Ins. Natural Resources Defense Council, Inc. Gillespie Jr. Miami L. Portland 69 P. Bedford, U. Conditional Approval at If assets are held custody in a fiduciary capacity, as is often the case, there are other requirements the bank must comply with under 12 CFR 9.

Whether that assertion proves correct with respect to any digital asset that is labeled as a cryptocurrency will depend on the characteristics and use of that particular asset.

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Understanding Institutional-Grade Crypto Custody

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What is a cryptocurrency custody service? Although accessible to individual users, these services are usually designed for institutional investors who store large amounts of funds. To ensure optimal security, the best crypto custodians often leverage a combination of hot and cold wallets.

By definition, hot wallets are online wallets and are thus prone to hacks hot storage. Yet, they are also more seamless. Cold wallets, on the other hand, store funds offline, which enhances the security but hampers accessibility to some extent cold storage. Why is crypto custody important?

Businesses transact and hold cryptocurrencies worth millions of dollars, which demand professional and specialized storage solutions. Furthermore, in the United States, investments over K USD are legally bound to employ certified cryptocurrency custody providers. Therefore, alongside the growth in the value invested in the blockchain-cryptocurrency sector, the demand and need for reliable custody service providers is on the rise. Top cryptocurrency custody providers Having understood the definition and significance of custody services, let us now discuss some of the best in class crypto custodian projects.

In doing so, we shall not follow any particular hierarchical order. As a user or project owner, you must choose one that is the best-suited to your specific requirements. Primarily a cold-wallet custody provider, the platform offers battle-tested, peer-reviewed, and segregated accounts for extreme security.

Supports more than coins and crypto tokens. At the time of writing, Genesis Custody is one of the best cold wallet crypto custodian service providers. Among other aspects, the project features multiple layers of military-grade encryption, while storing the private key in a geographically distributed manner. In doing so, they leverage several decommissioned nuclear bunkers for high-grade private security. Leverages innovations in Multi-Party Computation MPC for hardware-based, cold custody solutions, thus ensuring optimum security.

Enables streamlined digital asset trading for professional traders with rapid transaction processing and same-day settlements. Above all, is the security of crypto exchanges and private crypto wallets. In turn, this provides end-users with a perfect balance of security and liquidity. Helios adopts a multi-layer security architecture, leveraging distributed physical storage of private key, alongside a design that requires multiple sites to cooperate for any transaction.

Fireblocks Fireblocks is another distinguished crypto custodian platform, delivering an enterprise-grade infrastructure for handling digital assets. Enabling the secure transfer of crypto assets, it caters to exchanges, neo-banks, trading desks, and hedge funds. To date, they have transferred over nine billion dollars of digital assets globally.

Moreover, their insurance policy covers the assets during transit and during storage. Highlights Promises an 8x transaction speed and the option to choose between cold, warm, and hot wallets. Wallet-as-a-service model is easy to use and easy-to-implement, scalable, and flexible custody solutions for institutional players.

Coinbase Custody Building on its reputation as a cryptocurrency exchange, the New York-based Coinbase has launched its custody offering in This is similar to using your handle in a service such as Venmo or CashApp. A private key is like the key to your front door and is used to facilitate the transfer of cryptocurrencies out of a wallet and prove ownership over any funds held inside.

In order to send coins through the blockchain network, a user must first enter the public key and then confirm the transaction by entering the private key. Cryptocurrency is essentially a bearer asset, as the person who holds the private keys to a wallet effectively controls owns the coins inside.

So why is all this important? Well, understanding the difference between custodial wallets and non-custodial wallets means understanding who controls the private keys. Custodial crypto wallets Custodial wallets are wallet services offered by a centralized business such as a cryptocurrency exchange. Custodial wallets have certain benefits, such as less user responsibility regarding private key management. When a user outsources wallet custody to a business, they are essentially outsourcing their private keys to that institution.

The individual user is not responsible for protecting the private key to the wallet and therefore places trust in the business keeping the private key safe. When a user wishes to send coins out of a custodial wallet, they simply log in to the platform with a username and password, input the public key of the location to where they wish to send coins, and the business is responsible for inputting the private key to complete the transaction.

This creates an extremely simple solution for the user but also creates an additional layer of risk. There have been many exchanges that have been hacked, including Mt. In recent days, with the development of the conflict in Ukraine, certain governments have prevented custodial wallets from completing transactions for citizens in certain areas. The Canadian government even recently attempted to freeze the assets of a group of supporters funding the Canadian trucker protest.

Non-custodial wallets Non-custodial wallets do not have this problem.

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