Cryptocurrency custody: What you can do to safeguard your assets

Posted by Andrew Borowiec on Jan 29, 2019 10:47:00 AM


Security of the fund’s assets is one of the biggest concerns of any investor and nowhere is this more pressing than in the primarily unregulated and anonymous world of cryptocurrencies. Anyone, anywhere can steal digital assets with untold sums from you if they get access to your digital wallet.

It can feel like the equivalent of keeping your entire net worth in your back pocket. In fact, this can actually happen with millions if not billions of dollars worth of currency stored on an innocuous USB stick. Luckily, the industry has been quick to respond to the challenges of security and one of the most recent developments has been the creation of dedicated custodians, specialising in securing digital assets.

Why do I need a custodian?

In short, a reputable custodian is even more essential in the comparatively ungoverned world of crypto assets. You wouldn’t leave a multi billion dollar real estate portfolio with the proverbial keys in the door. Your assets are at risk on many of the platforms and exchanges that are typically used in the space, with frequent reports of hacking, fraud and other damaging activity making the news almost commonplace.

Your chosen custodian will need to assure you that their technology is impenetrable and also that their processes and premises are just as secure so you are convinced that your assets are as safe as they can possibly be. Due diligence must focus on every aspect of custodian security and a working knowledge of crypto tech is essential.

Many people will be inclined to look for established names in the space who are already trusted custodian banks, but others may well look to more progressive disruptor brands who have a more conventional Silicon Valley technology story that implies more native competence when countering primarily technological threats.

Who might I choose from?

There are a number of different kinds of players who have recently entered the crypto asset custody space, from niche providers like the Digital Asset Custody Company to mega banks like Fidelity, which at $6.8 trillion in total client assets is one of the world’s largest players.

2018 was a busy year for market entries. In January 2018, private Swiss bank Vontobel launched the first regulated cryptocurrency custody service whereas closer to home BitGo, a leader in crypto security, established the BitGo Trust Company, the first qualified custodian purpose built for the storage of digital assets. Others soon followed. In September Citigroup launched the DAR (Digital Asset Receipt) and in mid October 2018, Fidelity launched Fidelity Digital Assets.

Fidelity’s move hasn’t prompted much of a reaction from rivals State Street who announced mid January 2019 that while they were looking into the space they were not set to launch a rival product just yet. Similarly still to come is Coinbase Custody, a project from the largest US cryptocurrency operator.

With this many announcements in such a short space of time, you can be sure that 2019 will bring more of the same and it merits keeping a close watch on the industry for new market entrants with different offerings.

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Tags: Due Diligence, Due Diligence for Cryptocurrencies, Cryptocurrency

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