Bitcoin Giant Doubles Down On Crypto Custody: Will It Spark Institutional Adoption?

With recent exchange imbroglios, like QuadrigaCX’s nine-figure mishap and DragonEx’s recent loss of purported millions worth of Bitcoin, Ethereum, and other crypto assets, big-name onlookers are likely shying away from the space.

More likely than not, they see investing in this embryonic asset class as entirely risky, and thus nonsensical. A recent scathing Bitcoin-centric feature from mainstream business news outlet The Economist would confirm this. The article’s author mentioned the QuadrigaCX fracas a number of times to bash cryptocurrencies, as have many other mainstream outlets. (An anecdotal aside: whenever my friends personally bring up cryptocurrencies, they now always mention QuadrigaCX).

Industry firms, like Ledger, are trying to fill in the gaps, however, with a newfangled partnership that could turn the security issue on its head.

Keeping Bitcoin Safe

According to a recent press release, Ledger has partnered with Legacy Trust, a Hong Kong-registered and -licensed public trust company, to provide institutions with a custodial offering for Bitcoin and other digital assets. The two firms are purportedly targeting over-the-counter (OTC) desks, crypto exchanges, and high net-worth individuals with this venture, as it looks to fill a gaping hole in the institutional onboarding process.

We are thrilled to work with Legacy Trust to introduce a world-first institutional grade digital asset custody solution by leveraging the Ledger Vault – a multi-authorization wallet management tool for digital assets. Read more here: https://t.co/SHjjRUDZRh pic.twitter.com/iffB62VBRD — Ledger (@Ledger) March 28, 2019

Ledger will provide its Vault product, a key management solution, and technical expertise, while Legacy Trust will harness its license and industry reputation to secure clients across the board. Legacy’s Vincent Chok elaborated:

“The combination of Ledger’s technological versatility in safekeeping digital assets with Legacy Trust’s regulatory standing provides a complete and permanent solution to the issue of custody in the digital asset space, that did not exist until now.”

The solution will purportedly be unique, in that Ledger and Legacy will allow for the customization, thus allowing its clients to alter the service as they please to fit their specific needs. For Bitcoin exchanges, for instance, a “warm” wallet system could be used, allowing for fewer requirements to be met for the issuance of a transaction. For long-term holders, a classical cold storage system can be set in place, making it extremely difficult for an attacker to withdraw funds with the explicit permission of a number of stakeholders.

Demetrios Skalkotos, the head of the Ledger Vault division, tells The Block that the product was “designed […] to be very flexible for a client’s needs.” And in the eyes of Pascal Gauthier, the president of Ledger, this might be the single offering that could propel the industry to new heights, as a mass of institutions rushes into the crypto market.

Why Crypto Custody Is Of Utmost Importance

In an exclusive interview with NewsBTC at Token2049, Gauthier explained that he is “100%” sure that custody is the primary facet of crypto holding back the so-called “institutional herd” right now. He likens the current custody subindustry to the American gold rush, but with no banks, vaults, and safe makers. Gauthier rhetorically asked: “You can have a lot of crypto, but where do you put it?” Right now, he claims, there are few viable answers to that question. Well until the recent launches of Vault, Fidelity, and similar ventures anyway. 

So as “Vault and similar products are up,” providing institutional players with “security, asset support, and otherwise,” big and smart money can finally flood into this ecosystem. However, he makes it clear that there won’t be an instant transition from an anti-institution environment to one that has enough infrastructure to accommodate Wall Street’s biggest names. Gauthier tells us that while institutional infrastructure has moved from a state of just proofs of concepts to actual product, it may take upwards of “18, 24, or even 36 months” for a “foundational box to fall into place, bit by bit.”

Some expect this to come sooner though. Kyle Samani, a partner at Multicoin Capital, recently explained his thoughts on the whole institutional crypto space in a Business Insider op-ed. Samani explained that over 2019, custodial solutions should be something to watch, as offerings in this space will come to fruition, thus sparking some form of adoption.

Mike Novogratz, too, has expressed that institutions may be coming on rather quick. The Galaxy Digital chief executive recently told Anthony Pompliano that he sees institutions commencing their forays due to the bolstered infrastructure, citing his work as the head of a leading crypto merchant bank.

And with Fidelity Investments’s Tom Jessop recently revealing that there is abounding institutional interest in cryptocurrency, also for their custody service, it seems that asset security could very well be the factor that finally beckons smart money in.