Secure custody solutions are essential in the expanding world of digital currencies, and integral to managing risks for digital asset management. These solutions tackle all kinds of security issues including compliance, risk management, and regulation. It is also essential to investor and consumer confidence, a key element to more widespread adoption, innovation, and the integration of digital assets into the global financial ecosystem.
The safekeeping of digital assets
What are the different kinds of secure custody solutions? There are numerous types to choose from, especially when it comes to wallets such as; hardware wallets, which are physical devices designed for storing private keys securely offline; paper wallets, which are physical documents containing public and private keys; custodial wallets that have the keys held and managed by a third-party service provider; non-custodial wallets that are the responsibility of the customer; multi-signature wallets that require more than one signature; and software wallets that exist as an application on a connected device.
Wallets with offline elements are what is meant by ‘cold storage’, where keys are stored somewhere that is not connected to the internet and isolated against potential hacking or malware. Other solutions are not so technology-centric but are simply good practices such as insurance coverage, diversification of your security technology, safe transactions, and backups of private keys.
All of these various kinds of safekeeping play a crucial part in the secure custody of digital assets.
Areas of impact
Here are the most important areas secure custody solutions impact the world of digital asset management.
Risk management
Secure custody solutions enable institutions and investors to manage the risks associated with digital asset management. Strong security measures help to protect digital assets from cyber-attacks or theft, utilizing safety features such as multi-factor authentication, cold storage, etc.
Institutional Adoption
Institutional adoption of digital assets requires key safety concerns to be addressed, maintained, and consistently updated. Without that, institutions are unlikely to take steps into the crypto market, which limits the growing ecosystem and the opportunity for innovation. In addressing key concerns with the use of secure custody solutions, institutions can safely and securely participate in crypto.
Regulatory compliance
Secure custody solutions help digital asset management to be fully compliant with regulations, such as Know Your Customer (KYC) or anti-money laundering (AML). With safeguards and reporting mechanisms set, regulatory compliance becomes easier and more transparent.
Investor confidence
Investor confidence is essential to fostering the use of digital asset management, and it is easy to lose without security being ensured. Trust and credibility are key to bringing investors on board to the cryptocurrency space. Knowing that their investments are well-protected encourages more participation in the industry.
Efficiency
Custody solutions often come with tools that streamline the management of digital assets, including transaction processing time, performing regulation protocols, and portfolio management. Each of these operations, as well as being made more efficient, allows for better scalability. Individual and institutional investors in the digital asset market can scale their offering, expanding the market hugely.
When the customer is king
In regions where interest in digital assets is growing, secure custody solutions are fueling that surge. Research from Chainalysis showed a 480% rise in documented interest in crypto in the MENA region last year alongside a noted rise in companies offering secure custody solutions for businesses. Another report by PwC citing 72% of high-net-worth individuals in the area interested in alternative digital assets. However, that interest will be not followed up by investment or real-world uptake if it is not backed by security, one of the most consistently cited reasons for not adopting crypto.
The role of secure custody solutions is vital for the security and growth, through investors and institutional adoption, of digital asset management, but it is also crucial for consumer adoption. Without customers feeling comfortable with the security levels of cryptocurrency, there is no industry to grow. With the variety of custody solutions available, there will be something for every consumer, and every institutional player. Both of those elements need to be taken into account rather than one more than the other - or the appetite for digital asset management just won’t be there.
Secure custody solutions in the future of digital assets
The role of secure custody solutions in digital asset management cannot be overstated. Digital currencies are expanding - backed by interest from customers, institutions, or innovators in the space. These solutions will ensure the more efficient and in-depth management of risks, easier regulatory compliance, and boost investor confidence. The wide range of options is not just the benefit of those offering digital asset management, but users themselves. Studies are showing an increased interest in crypto in regions around the world, highlighting the huge potential for expansion. However, without security measures such as secure custody solutions, that may not translate into real-world adoption.
With the right security infrastructure in place, consumers, investors, and institutional parties can confidently participate in digital asset management.
