Key custody issues in the cryptocurrency industry include client demand, security, liquidity and insurance, said panelists at Consensus: Invest 2018, held Tuesday in New York City.
The panel consisted of Christine Sandler, head of coverage at Coinbase; Demetrios Skalkotos, global head of Ledger Vault; Josh Schwartz, vice president of institutional sales at BitGo; and moderator Scott Daspin, director of institutional sales at Triad Securities.
Qualified custodians of cryptocurrencies are paying attention to client demand when deciding which assets they will accept, the panelists said.
They are also considering issues of security versus utility with regard to how private keys are stored, whether offline in “deep cold” storage or in more easily accessible “hot” storage. Cold storage makes transactions take longer, while hot storage eases the movement of funds but adds more risk, Schwartz said.
Sandler said most Coinbase clients are sophisticated enough to manage shifts from cold to hot or vice versa. “The two sides will begin to meet in the middle, where you’ll have [a] robust security solution that enables you to keep keys offline in cold storage but also enables you to access them appropriately,” she said.
Skalkotos said Ledger Vault has a “temperature-agnostic” approach. “Waiting 24 to 48 hours for your funds, I think, is unacceptable,” and customers should be able to access their assets immediately if follow the proper security protocols to do so, he said.
Clients, in addition to asking about security and regulatory compliance, are also asking about insurance for custody solutions, the panelists said. An overly heavy reliance on insurance, however, can have drawbacks, Schwartz said.
“What I fear is that, first of all, insurance becomes a means to disregard all the importance of security,” he said. There is uncertainty about whether insurance will always make payouts, as demand might not be high enough and insurance might not cover all risks that investors face, he said.
“Insurance is not a shortcut for not doing due diligence,” Sandler said. Coinbase wants to “help to educate insurance providers regarding our solution and the quality of our solution so that they have confidence so that they can help our clients underwrite their own assets,” she said.
“If clients want additional insurance, we want to provide them with a mechanism” to obtain that, she said.