Crypto Wealth Protection in Spotlight Amid Surging Institutional Demand

Asset managers, hedge funds, and high net-worth individuals (HNWIs) have been dipping their toes in cryptocurrencies. DeVere Group CEO Nigel Green recently said that there is a “growing retail and institutional demand for cryptocurrencies because it is becoming increasingly clear that the shift towards borderless, global digital currencies is inevitable.”

Convenience and security

With institutional investors flocking to own digital assets, security measures have come into the spotlight. Though the blockchain itself is highly secure, hackers frequently manage to steal funds by exploiting human errors, blind spots, and other weaknesses. Institutions are extra cautious with their assets because the stakes for them are much higher than for an average Joe.

When it comes to the custody of their crypto assets, users have a wide variety of options to choose from. Hot wallets such as desktop wallets, online wallets, and mobile wallets are always connected to the Internet. They are convenient, but highly risky because they are an easy target for hackers.

Cold wallets such as the Trezor and the Ledger Nano X are much more secure. They are not always connected to the Internet. You have to connect them to the Internet when it’s time to execute transactions, which is when the attackers could target your wallet. Also, it’s not uncommon for hardware wallets to get stolen, suffer from software issues, or deteriorate over time.

From wallets to vaults

Institutional investors prefer to keep the cryptocurrencies they don’t need for immediate use in vaults rather than wallets. Vaults bring additional security layers and require multiple approvals to make withdrawals, which makes them more suitable for high-balance accounts and long-term storage.

Third-party crypto custodians are combining innovations in cryptography and digital security with physical security and regulatory compliance to woo institutions.

Spain-based security firm Prosegur has launched its crypto custody arm to bring high-security vaults for digital assets. Prosegur secures about $400 billion worth of cash, gold, jewelry, and physical assets. Its vault, named Crypto Bunker, uses the Israeli cybersecurity firm GK8’s patented cryptography that eliminates the need to be online while executing transactions.

With Crypto Bunker, institutions can create, sign, and send blockchain transactions through a unidirectional connection. However, even highly secure vaults are vulnerable to human errors and physical tampering. Prosegur claims that it uses its decades-long experience in physical security to prevent physical extortion and robbery, both by insiders and outsiders.

Prosegur Crypto CEO Raimundo Castilla said, “The combination of bank-level physical security and new generation cold storage technology means that Prosegur Crypto is the safest place to store crypto assets for institutions, businesses, and any other entity requiring secure cold storage.”

As institutional interest in cryptocurrencies balloons, the custodial services, as well as crypto exchanges, must address users’ concerns about safety and fraud prevention.

Ben Caselin, Head of Research & Strategy at AAX, said in a statement to NewsBTC, “As the market for digital assets continues to grow in both size and sophistication, the need for institutional-grade custody solutions has become more pressing. Regulated crypto custodians have the technical know-how to safely handle digital assets for their clients and are able to meet complex regulatory requirements around risk-management, reporting and transparency.”

Caselin believes that custodians could also facilitate communication between regulators and participants in crypto. Citing the example of Asian digital asset custodian Hex Trust, he said, “In the Asia region, we have Hex Trust which is licensed in Singapore and aims to connect the digital asset ecosystem to traditional finance. They work with family offices, other funds, but also entrepreneurs and blockchain projects. In that sense, custodians can also play a key role in raising the profile of crypto projects in terms of trust and transparency.”

Speaking at the SALT Conference in New York, Brett Tejpaul, the head of institutional sales at Coinbase, said, “It’s up to the crypto custodians to promote that they can provide the same types of institutional infrastructure to custody crypto that are there for any other asset classes.”

Wrapping it up

The emergence of high-security crypto custody solutions is a major step in making the ecosystem safer than ever before. While hot wallets offer convenience and cold wallets are good enough for most small investors, institutional investors need added layers of security. The entry of giants like Prosegur, which focuses on both digital as well as physical security, could shake things up.