Cryptocurrency custody solutions represent third-party providers of storage solutions that act as “custodians” of an entity’s cryptocurrency.
As a relatively new element to the crypto space, these solutions providers have been instrumental in helping entice institutional investment via improved safeguards.
Crypto custodians are a necessary step in the crypto ecosystem, given the need for such assets to be seen as a safe and attractive financial asset option for venues and investors.
The use of major institutional custodians can also help provide secure place to store large amounts of crypto assets.
These look to curb the risk of hacks and increase the trust of the investing public in crypto assets. This is accomplished via private keys, which are relied upon to access crypto holdings and conduct secure transactions.
Unfortunately, private keys have several inherent security vulnerabilities, such as being lost, stolen, hacked.
Institutional Interest in Crypto Custody Solutions
According to SEC regulations included in the Dodd Frank Act, institutional investors that have more than $150,000 in cryptocurrency are legally required to place their holdings in the care of a “qualified custodian.”
These include banks, savings associations, and registered broker-dealers; the definition also includes foreign financial institutions and futures commission merchants.
Crypto custodial security systems usually involve a combination hot (internet-connected) and cold (non-internet-connected) methods of storage.
However, regulations around exactly how these qualified custodians should care for their customers’ cryptocurrency are still lacking.
More regulation on this matter is expected to develop in the future, which will evolve into a necessity should greater institutional interest and investment grow proportionately.