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Crypto Custody: Our Shared Journey Towards Mass Adoption
Balance | Nuno Silva | June 7, 2019
Over 1 billion dollars worth of crypto assets were stolen from exchanges and trading platforms globally last year. In the infamous case of the Vancouver based QuadrigaCX, people lost entire savings accounts and even mortgages, without any individual real recourse to date. Over the last three years we've seen an explosion of cryptocurrencies, utility, and security tokens, with over 2000 such digital assets live and trading.
As prices skyrocketed, individuals and businesses found themselves holding digital wallets, some worth tens of millions of dollars. The current state of the art as far of securing the wallets unfortunately involves USB-stick like devices, cloud storage backups, or worse, plain text passwords written down on paper. Paper. We doubt that this is the digital revolution that Satoshi Nakamoto had in mind when they conceived Bitcoin.
For instilling the necessary consumer confidence for mass adoption we need better solutions for safely storing and accessing crypto assets. For the most part, such institutional grade solutions have been developed outside of Canada and are typically too costly, are unregulated, and involve processes which are opaque or undefined.
See: Architecting a New World: Investment Crowdfunding and Digital Assets
Traditional institutions and high net worth individuals have been inundated with tales of losses and potential fraud through their peers and the mainstream news media. This perceived risk makes them reluctant to fully engage with the crypto asset space and continues to erode trust in the participants and the ecosystem as a whole. A few years ago, the team at Balance embarked on a journey to fix this issue out of necessity.
As a fledgling Toronto-based start-up, the road to ensuring we meet the traditional regulatory criteria hasn’t been an easy one. Since inception, we’ve engaged world-class legal counsel to help us navigate the regulatory landscape. In 2017 we’ve engaged with the regulatory sandbox at the Ontario Securities Commission, which would eventually get our CEO, George Bordianu selected on their 2018 and 2019 Fintech Advisory Committee.
In order to understand and navigate this regulated space while bringing bleeding edge innovation to it, we needed to embrace the existing system rather than fight it. We started with a closed pilot that lasted for 18 months before, we were finally happy with the quality and security of our technology solution. With the appropriate disaster recovery, and succession planning protocols put in place, we decided earlier this year it was time to open the pilot to a handful of select institutional clients, with growing digital asset holdings.
Their feedback helped us develop a solution which we believe will set a new gold standard in securing and managing digital assets in Canada. Our institutional grade custody features geographically distributed offline vaults, physical locations that are access controlled, monitored, and guarded 24/7, and top of the line dedicated hardware with true military grade security. Strict internal controls and policies protect assets against external threats, human error, and misuse of insider access.
See: Statement on “Framework for ‘Investment Contract’ Analysis of Digital Assets”
Asset security however is just one aspect of the equation. Before crypto exchanges, fund managers, and trading desks were to be comfortable with a third-party custodian, we had to bring more to the table than just a secure storage solution.
From a qualified custodian, you typically expect:
- deep liquidity: to source very large amounts with tight spreads,
- regular audits and a qualified opinion,
- insurance on the vaulted assets,
- as well as qualification, through an affiliation with a scheduled bank or trust, or through an IIROC dealer.
These expectations are based on decades of experience and we’re proud to have put these pieces and relationships in place to serve the Canadian market.
The history of financial custodian services began from necessity. As the landscape evolved from safely storing physical paper stock certificates, to distributed databases, and now to immutable digital ledgers with individual assets secured with cryptographic keys, the world of custodial services continues to evolve alongside. It’s exciting to finally see legitimization and confidence from Bay Street investors that are coming into what’s already a fresh and thriving multi-billion dollar market. We’re committed to work alongside them in deploying the key infrastructure pieces needed to mitigate the technological risk.
See: FCA confirms new rules for P2P platforms
The journey to mass adoption and consumer confidence needs to include the already established institutions, not bypass them in hopes of avoiding the necessary hard work we have to collectively do to conceive and implement appropriate regulatory controls. We’re certain a qualified digital asset custodian in Canada is a good first step towards enabling the next wave of adoption.
Nuno Silva, Chief Product Officer, Balance
Nuno is an executive product leader with experience working with large global communities, co-operatives, and technology start-ups. He is currently the CPO of Balance, a Toronto based fintech startup with a focus on digital assets. Their current product offering currently consists of Balance Now: a self-serve solution for retail investors, and Balance Custody: an institutional grade custodian for digital assets.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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