What is institutional-grade custody?

With more wealth managers and institutions entering the crypto market, it’s time to introduce them to institutional grade custody.
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Now that Bitcoin has burst through the R1 million mark – something many thought inconceivable a few years ago – hackers will be tempted to crack whatever weak links in the security chain they can find.

The Bitcoin blockchain itself (as far as we know) has never been hacked. It’s virtually impossible because a hacker would have to simultaneously infiltrate thousands of computers distributed around the world. But that doesn’t stop them looking for other potential weak links, such as crypto exchanges.

Click here to securely buy, sell and store cryptocurrency.

A major barrier to broader institutional adoption of cryptocurrencies has been lack of trust in the way cryptos are stored. Institutional-grade custody is intended to solve that problem. Unlike credit card fraud which can be reversed, there is no recourse if you lose your crypto. There’s no one you can phone or complain to – that is one of the hazards of peer-to-peer transactions such as take place in the crypto world.

“All our client funds are held offline, away from the internet completely, which is the best security you can get,” says Jon Ovadia, CEO of OVEX.

This is known as ‘cold storage’. Accessing these funds requires a public and a private key. The private key is never connected to the internet, which means it can never be intercepted or hacked. Any movement of funds requires multiple signatories (known as multi-sig) which stops any individual employee going rogue and making off with your funds.

“Our security processes are extremely robust, and while this can slow down withdrawals and transactions, we would rather have some delays than expose our clients to any risk,” says Ovadia.

Another piece of the security puzzle is Ledger Vault, a security system that allows institutions to set their own transaction rules, such as placing a cap on how many Bitcoin can be moved from one address to another. It requires multiple signatories to sign off on a transaction before it is published to the blockchain and becomes public information.

Finally, OVEX has a $100 million insurance policy underwritten by Lloyds of London for any loss suffered to client funds.

Click here to securely buy, sell and store cryptocurrency.

“There has been a lot of development around safe custody of cryptos in recent years, particularly aimed at wealth manager institutional investors like hedge funds who need to store large amounts of Bitcoin and other cryptos,” says Ovadia. “Cold storage solutions which are disconnected from the internet offer better security, but there are numerous ‘hot wallet’ technologies now available that make it possible to connect to the internet in relative safety.”

Hot wallets (which are connected to the internet) are tools that allow users to store, send and receive cryptos. They rely on encryption technology to prevent any breach of security. The fact that they are connected to the internet makes them more vulnerable to hacks than cold storage methods of security.

These are not wallets in the more commonly understood meaning, since their purpose is to facilitate any changes to the record of transactions stored on the decentralised blockchain comprising thousands of nodes or computers that keep an up-to-date record of transactions.

“When you purchase crypto on an exchange, you generally rely on the exchange to safely store your cryptos on your behalf, but more recently we have seen a trend towards removing cryptos onto wallets that are not tied to any particular exchange. Because of the high value of crypto funds transacted through our exchange, we have opted for the very best institutional-grade custody,” says Ovadia.

About OVEX: OVEX operates on the largest over-the-counter (OTC) crypto desks in SA, allowing high-net-worth buyers and institutions to purchase large volumes of crypto instantly and at low fees. It also offers a crypto arbitrage service for those seeking to profit from price difference in cryptos between local and overseas exchanges, and offers interest accounts where clients can earn up to 10% a year on certain cryptos (and more for large amounts of crypto).

Brought to you by OVEX.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

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