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US Banking Regulator Green Lights Crypto Custody

US Banking Regulator Green Lights Crypto Custody

April 2, 2021 | 

JOHN K MWANIKI |  0 Comments| 

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Among the latest news in the crypto market is that the US bank regulator responsible for regulating custody arrangements green lights crypto custody by banks. A leading bank regulator gave banks in 2020 the green light to safe keep cryptocurrency. 

Cryptocurrency custody is among the strategies used to introduce digital currency into the industry. Cryptocurrency custody solutions are used by traders holding large quantities of digital currencies.

Regulator green lights crypto custody: why it is good news

Cryptocurrency trading and the use for payments is the modern way of doing things. There is a need to provide the services to people who need them. Banks will now be able to hold and safeguard cryptocurrencies for their customers. They will also hold the keys they will be using to access their investments.

The authorities have allowed banks to use virtual vaults to safe-deposit boxes. This is to ensure that customers get end-to-end services. The news of the regulator green lights crypto custody has the following significance.

1. Safeguarding of cryptocurrencies

While there are several options for safekeeping cryptocurrencies, they come with several drawbacks. The private crypto keys face the constant risk of getting lost. This is because they are extremely hard to remember. Note that the keys cannot be restored, and if a trader loses them, they end up losing their assets. 

Online wallets are also used to store crypto assets and allow access to transactions. Yet, these face the risk of hackers who can take the assets if they have access. 

Some traders store the private keys offline through paper wallets or hardware wallets that resemble flash drives. Like the keys to the software wallets, investors can lose keys to hardware wallets. If you lose physical custody of the wallets and keys, it is impossible to recover them and the assets too. 

Custody solutions by banks will go a long way in protecting customers from the looming danger. Protecting large amounts of digital assets with software and hardware wallets is becoming a challenge. 

2. Regulation

Custodial cryptocurrency solutions will also go a long way in enhancing regulation. As much as the regulator green lights crypto custody, it is worth noting that not all institutions can do so. This regulation is in place to protect investors and their assets.

Banks, savings associations, futures commissioned merchants, and registered broker-dealers have the green light. The regulator has gone further to specify that only a few mainstream banks will be offering the services. 

3. Ease of use

Regulator green lights crypto custody, and one of the benefits is the provision of services easy to use. Investors that are not tech-savvy have been struggling with the complexity of the crypto interfaces. Other times, they have to seek help from people. 

Custodial solutions for crypto will enhance the ease of use. This is especially for investors with complex portfolios. Custodial solutions will meet both security requirements and usability. 

The custodial solution features to look out for

More people look to get custodial services following the announcement. You must have a list of requirements to deliberate your choice. Here are the things to consider.

1. Scalability and reactivity

The solution has to be responsive enough to allow you to react to sudden market changes. Unfortunately, cold storage is known for tedious and time-consuming processes. Mainstream banks understand the unique nature of digital currency. This is alongside the need to customize the solution. This is to allow investors to take advantage of the ongoing trends. 

The solution should be flexible so that customers can get payouts when they need them. Note that delays in this light provide enough time for the value of the assets to change. Transaction capabilities, in this case, need to be scalable. This will allow the desired number of transactions within a given time. 

2. Security

There is one question that people have asked on the announcement, "US regulator green lights crypto custody." That is, how secure the solutions are. Security is a significant concern in the crypto market. Hackers are hunting for wallets they can take over, thus the need for protection.

3. Multi-party computing

Multi-party computing (MPC) features should be available on the custodial solution. With that, you will know that scalability and security issues are addressed. Multi-party computing provides a top-tier security architecture. At the same time, it allows flexibility in transactions. 

How does multi-party computing enhance security? The crypto key is not usually stored in one single space using this architecture. The different slices come together when the user requires the key for transactions. 

Multi-party computing also paves the way for multi-signatory. For instance, hedge funds and other institutional investors might need several people to sign off on the transactions. This architecture makes it possible by allowing the different signatories have different slices of the key. 

Who are the players, and what is in store

Already there are big exchanges in the cryptocurrency custody space. Coinbase is a pretty good example, making acquisitions of a registered broker. Institutions like the Swiss Bank have already made their moves. That is by launching cryptocurrency vaults to provide their customers with the solution.

How does the future look for the custodial space? It would be safe to say that the future looks bright. Already, exchanges are making acquisitions. This is to be able to offer their investors the solution. More so, banks are availing the solution in their services due to the projected high demand. 

As cryptocurrencies grow in popularity, custodial solutions are becoming popular too. Institutional investors and analysts have declared the solution as a bridge. That is between traditional and cryptocurrency investment space. 

As the US regulator green lights crypto custody, big players in the investment market are reacting. This is as seen with the Swiss Bank's case. The fact that there are big names in this space will also motivate investors to use the solution. 

Regulatory clarity signals high security. This will also contribute to the custodial solutions' popularity. 

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