As demand for cryptocurrencies grows, so does the need to store access keys securely and for a secure system in which to move assets. Metaco’s new technology does all this and more, writes Adrien Treccani
Less than 10 years ago, cryptocurrencies were science fiction. Today, bitcoin and other digital currencies are not only an asset class in their own right, recognised by investors across most of the globe, but also a tool of international trade.
With daily trading volumes in January 2018 reaching in excess of $50bn, cryptocurrencies are beginning to rival some of the world’s most liquid assets. Demand is particularly strong in Switzerland, Europe and Asia, while in the US, the CME started offering futures to trade bitcoin, perhaps the best known cryptocurrency, from mid-December, indicating the growing importance of this asset class.
A cryptocurrency is an encrypted digital or virtual currency that can be traded digitally. It is stored securely in distributed ledgers – blockchains – that are not controlled by central banks or governments. Its value depends on supply and demand, and a digital key gives access to the cryptocurrency asset stored on the blockchain. These keys need to be kept securely.
Storing these keys is critical because if they are lost or stolen, so is the asset. But storing them is extremely hard – specialist technology is required – and theft and loss is not unknown. Some 1.5m bitcoins have been stolen at least once since 2010 and major companies such as BitFinex have been hacked.
Despite these challenges, cryptocurrencies remain popular. There are several reasons for this. Perhaps most importantly, they are efficient and secure. They allow peer-to-peer payment without an intermediary – a big plus point when it comes to international settlement. Their digital straight-through nature cuts the risk of errors during settlement, lowers transaction costs and reduces the latency suffered by traditional currencies and traditional settlement methods. The fact that they are immune from political forces – government interference – is also appealing.
Yet many financial institutions are still unable to process or store the keys to cryptocurrencies, lacking the necessary technology and high level of security. This is a particular concern for private banks, because their customers increasingly demand this new asset class to diversify their portfolios. Where the service is offered, it is highly manual, expensive, inefficient and insecure. As an alternative, customers are using rival services from fintech start-ups such as Xapo, which controls about half of the retail cryptocurrency market.
This is far from ideal from the customer’s point of view. Start-ups lack the track record and therefore the trust that banks and other financial institutions have earned over the years. In addition, start-ups are frequently unable to offer a comprehensive service – for example, keeping tax records and meeting other regulatory requirements – in the way a bank would.
This is where Metaco can help. With a long history of building digital wallets and custodian solutions for retail customers and of managing cryptocurrencies, we have now developed a new product. Called Silo, it is a wallet management system that brings financial institutions into this burgeoning ecosystem.
Silo is uses military-grade hardware to provide the highest level of cyber and physical custody to allow institutions to store cryptocurrency keys and process transactions securely. It is a multi-account wallet management system that can be on-premise or accessed as a service and can support many different cryptocurrencies. Security features include custom access rights, transaction flow limits, multi-signature and conditional locks. Full audit trails are built-in and we offer high availability guarantees as well as dedicated support.
But cryptocurrency custody services for bitcoin accounts, for example, aren’t the only services we can offer. A second important complementary service is tokenization – where a digital token is used to store ownership of a non-currency asset registered on the blockchain. The token can be for any asset such as gold, land, art, antiques, jewelry or some other property and is a legal contract. It proves ownership of an asset that may be stored anywhere, but that proof – the token – can be traded digitally. Our technology can store those tokens securely, too.
Silo’s solutions are tailormade for financial institutions wanting to participate efficiently in this new market. For them everywhere, the ability to store cryptocurrency keys and move assets securely will soon become a regular feature of business. With our technology, they will be able to introduce this service seamlessly. We hold the keys to blockchain.
Adrien Treccani is chief executive of Metaco