In this guide, you will learn what cryptocurrencies are, how they work, and why they are so important to the digital asset markets.
What is a cryptographic guardian?
In traditional finance, a custodian is a financial institution that holds securities and other assets on behalf of institutional investors to minimize the potential risk of loss or theft. Before the digitalisation of the financial markets, depositaries kept stacks of physical share and bond certificates. Today, most titles are stored in electronic form.
The largest depository banks are State Street, Bank of New York Mellon and JP Morgan Chase.
Over the past 18 months, we have seen an increase in the number of cryptocurrency providers.
A cryptocurrency custodian holds digital assets on behalf of professional and institutional investors. They offer secure storage for a small fee.
The reason for the existence of cryptocurrencies is twofold.
- First, investors who do not want to deal with the technical side of securely storing digital assets can continue to invest in this new asset class.
- Second, they allow institutional investors, who must hold their investments in a regulated depository, to enter the digital asset markets.
In this way, deposit accounts for cryptocurrencies also make it possible for investors who previously did not have access to the digital asset markets to invest in bitcoin and co.
How does guardianship of cryptocurrencies work?
While the process varies from custodian to custodian, investors typically register with cryptocurrencies, undergo AML/KYC verification, and then route their digital assets to wallets managed by the custodians.
Cryptocurrency custodians store their clients’ digital assets in multi-signature cold wallets to ensure maximum security of funds.
An example of a leading cryptocurrency custodian is Mint Guard. The company, which operates independently of its parent company Coinbase Inc, is a fiduciary manager under New York State banking law and is also a qualified custodian. This means that the supply of childcare is fully regulated.
Coinbase Custody stores customer funds at designated blockchain addresses, secured by Coinbase’s proven cold storage facilities. These are insured and regularly inspected to ensure they meet current cryptocurrency storage requirements. In addition, Coinbase Custody has allowed bets on the proof of authenticity of the assets it holds on behalf of customers.
Other leading cryptocurrency depositories include BitGo, Gemini, itBit and Kingdom Trust.
Why curation of crypto-currency is important for Bitcoin
The main reason why the rise of cryptocurrencies has been so important to the bitcoin and digital asset markets is that it has allowed knowledgeable institutional investors to get into crypto.
Many institutional investors are required to hold their securities and other assets with qualified custodians, which is a barrier to entry that may prevent more money from entering crypto.
With so many regulated custodians to choose from, we can expect to see more institutional money flowing into blockchain assets.
While the big institutional money wave that the cryptocurrency market has been talking about for years hasn’t hit bitcoin yet, a growing cryptocurrency investment ecosystem makes it increasingly likely that this year could be it.
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