Custody solutions for individuals and businesses

Updated: Mar 25, 2020

There are several ways to securely store your own cryptoassets for individual investors and institutional investors and hedge funds. We will remind you that, according to the SEC (Securities and Exchange Commission, the U.S. body responsible for enforcing securities and securities laws and regulations), the definition of "custody" is "to hold, directly or indirectly, funds or securities of customers, or have any authority to gain possession of them." Due to the decentralization and less regulation of the crypto world, the forms of custody that present themselves for this type of asset are less bureaucratic and work differently, as we will see here.

Wallets: They function as "self-custody", that is, an external custodian isn’t necessary. Generally, a wallet will have a public address for you to receive cryptoassets, plus a private key that is used to access your retained assets and send crypto from your wallet.

  • Hot wallet: A hot wallet that is connected to the internet all the time. This storage method requires a private key to access stored cryptoassets. This type of wallet can be risky as internet connectivity means your cryptoassets could be at risk if hackers can gain access to your phone or computer.

  • Cold wallet/paper wallet: They are not connected to the internet, making the cold wallet less prone to possible intrusions. Paper Wallet is a type of cold storage, in which the details of your pubic address and your private key are on a paper physical voucher, usually in the form of a QR code and then stored in a secure location. The key generation process is done in your browser's JavaScript engine, so it’s never transmitted on the internet. As an example, FCH uses Cold Wallet in 100% of the stored balances, so it’s not possible to hack or steal our users' money. To increase security, we check the loot that is made manually and work with more than one access device to avoid losses.

  • Hardware wallet: Another type of cold storage solution, in which it stores the user's private keys on a hardware device. These wallets don’t have an internet connection, that is, they only connect to the network until you choose to do so. This can be done via USB. When connected to the device that contains your public keys generally performs all the requirements that a standard wallet would do in a transaction between you and another person, the only thing that the connected part of the device cannot undertake is the signature of the disconnected (offline) part of the device retains its private keys and is responsible for this function. Although commonly considered the best way to securitize your digital assets, the main risk is that, just like your traditional pocket wallet, the device is a physical device that can be prone to theft or loss. In cases like these, hardware wallet manufacturing offers varying levels of additional security, such as: PIN access (which is similar to a PIN you would use on your credit card) and seed key access that is a randomly generated seed key that you should write or store in a place that only you know, so if your device is lost, you can simply buy another device, restart it with your seed key and access your funds again.

Custodian of brokers: Although there are no laws for cryptoassets yet, institutional investors, such as hedge funds, need to use a regulated and separate custodian for most other asset classes. So if you invest in a crypto fund, for example, you're likely to want your retained assets to be secured by a custodian, a company that provides greater security and governance than a portfolio.

For the fund alone, the benefit of using a custodian can be detailed in its Offer Memorandum as a "selling point" for potential investors.

As an example, FCH designs the Vault service, stored in Cold Wallet, with the possibility of profitability and personalized service with periodic contact with the customer. There is no minimum deposit amount, but annual fees are charged for using the service.

Specialized custodian: Companies that are specialized only in custody.

  • Branca Ícone Instagram

© 2020 by IBFL Exchange. All Rights Reserved.