There are many banks and financial institutes that provide crypto custody solutions. But do you know what Crypto custody service is? Who are the main users of this service? In the following section, we will see what you should know about the crypto custody along with the future of this service in the present world.
14 February, 2020, | AtoZ Markets –Crypto Custody solutions pave the way for digital assets to hold securely in large volumes. Some experts believe that this service could be the best to trigger an influx of new capital from traders on the institutional level.
There are some other solutions to store digital assets, like hot and cold storage. As we know, hot storage is connected to the internet that holds cryptocurrencies. Therefore, it is easy to access the coin from anywhere with internet connectivity. However, this contains a risk of stealing the asset by a potential cyber-attack. On the other hand, cold storage involves storing digital currencies offline. Theoretically, cold storage is more secure than the hot storage as it is free from any online threats.
Apart from these storage methods, crypto custody involves holding assets on a larger volume.
In the following section, we will see what the crypto custody is along with the concept behind this and the future possibility of this in the future.
What is the Crypto Custody Service?
The basic definition of custody is when an institution holds onto assets on behalf of someone. This concept is different from making a deposit into a bank account. When you deposit money in your bank account, the bank is free to use your money to any borrower in order to earn interest. However, in a custody relationship, the custodian or bank has no right to lend out your assets to other people. Instead of doing this, they only store it and secure it on your behalf.
Another important feature of custody is that the custodian is responsible for your assets if they are lost or stolen. In that case, the custodian is responsible for restoring your assets in full. Therefore, the institutions that provide custody have an expensive insurance policy to protect themselves from any loss.
Another feature of the custody is that the custodian does not earn any interest as they are not allowed to lend the asset to others. However, the custody arrangement requires the client to pay some fees for taking the security and insurance service in the event of a loss.
What You Should Know About the Crypto Custody Solutions
As we have seen earlier, the concept of crypto custody is to store digital assets in a larger volume.
There are many companies that are providing cryptocurrency custody services. The overall process is like a traditional arrangement. The custodian will protect assets for you and provide insurance in case of a loss. Like traditional custody services, they will charge a fee for this service and that fee can be quite high.
#1 Who Uses the Crypto Custody?
If you read the above section, you would know that the custodian provides maximum security of an asset. Therefore, they take a handsome amount of charge. Therefore, the main users of crypto custody are Institutions that have a larger amount of digital assets.
The main aim of institutions is to make money. Therefore, they take risks on assets they think are a good bet. Cryptocurrencies like bitcoin have been a good bet for a long time. Despite there being several ups down on the market, the overall market structure is very potential. Moreover, cryptocurrencies are still undiscovered by many conservative financial institutions like retirement account holders of investment funds. They have billions of dollars in their account that they did not invest in the crypto world until now.
Therefore, Crypto custody is an excellent solution for them. It allows big investors who don’t want to enter the cryptocurrency market directly but want to make a profit from investing in it. In that case, their hands are still free to make investments.
However, the cryptocurrency requires a lot of security as it is not recoverable once stolen or lost. Therefore, a trusted custody provider with a proven track record is the best solution to rely on.
From a regulator’s side, the benefits of crypto custody are obvious. The United States Securities and Exchange Commission has declared that any institutional investor with more than $150,000 in assets should use crypto custody to ensure that they are under the control of a “qualified custodian.”
#2 Advantages of Crypto Custody
Theoretically, crypto custody helps to prevent assets from being lost.
In the crypto world, there is a risk of forgetting the private key. After losing or forgetting, there are no recoverable options for the private key. Therefore, anyone who has cryptocurrencies like Bitcoin or Ethereum can lose these forever due to not having the private key.
Crypto custody provides the solution to access the private keys just like lost PIN code for a debit card replaced by the central authority. These outfits are made to keep large volumes of digital assets with high security and insurance.
In that sense, the German parliament has passed a law to enable banks in the country to sell cryptocurrencies and custodian services. Some analysts believe that this bill would make Europe crypto heaven. However, some people also believe that this would bring up new risks to consumers. There is a risk that the public may invest in the cryptocurrency without understanding the risk.
#3 Biggest Crypto Custodian
Coinbase is dominating the institutional-grade crypto custody solutions. In addition to that, this crypto exchange recently announced that they have several acquisitions like investment management and financial services. Therefore, they moved to the institutional market by showcasing these achievements.
Kenneth Yeo, CEO of Singapore-based crypto options trading platform Sparrow believes that as the digital asset industry continues to expand and establish. Moreover, bitcoin is getting familiar with people rapidly in the world. So it is time for the investors to use their hands in the crypto world by using a trustable crypto custody service. However, the recent increase in demand for crypto custody solutions is neutral. These days, institutional investors are buying over $200 million to $4000 million worth of crypto on a weekly basis.
As we know, over $1.1 billion worth of cryptocurrency was lost due to theft and fraud. In this regard, custodians will provide the maximum solutions in the sense of monetary security and long-term stability.
#4 Futures of Crypto Custody
According to the research of the Bank of New York Mellon, the demand for cryptocurrency custody solutions is currently at an all-time high. Many analysts believe that such offerings will help to cover the gap between the institutional investment market and the digital industry.
In that sense, some banks have reportedly been testing their very own custody platforms. For instance, Swiss bank Vontobel recently launched its Digital Asset Vault to provide its clients with access near 100 banks and wealth managers. In the primary stage, they are giving instructions regarding the acquisition, custody, and transfer of crypto assets using the institution’s existing infrastructure. Similarly, German stock market Börse Stuttgart, Fidelity, State Street, and Coinbase are offering their customers similar services.
Current regulations within the U.S. require their client’s crypto assets with a licensed custodian. Therefore, there is no singular definition of what the term “crypto safekeeping” means across Europe. The ECU Securities and Markets Authority has requested a variety of nations to make a framework to establish more clarity regarding this matter.
Cryptocurrency traders can custody their digital assets both directly or indirectly. Those that prefer to custody their digital assets directly will have significant discretion over the way to achieve this task. However, among the several options taking this path comes with responsibility. If an investor holds their digital currencies indirectly, the third party is responsible for any loss of the cryptocurrency.
In the Crypto custody service, the custodian takes responsibility for holding an investor's cryptocurrencies. Therefore, this approach means traders do not have to stress about the administration of their digital currency, in the present world, crypto exchanges naturally drew the eye of people like hackers by accumulating digital assets. Therefore, crypto custody is the only solution that has a high level of trust.
What do you think about the Crypto Custody Service? Share your thoughts in the comments section below!