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Cryptocurrency custody concerns: Who holds the digital storage keys?

Got Crypto? Make sure you own it and have access to it in a secure digital stronghold.

Having self-custody of your cryptographic keys and managing your digital assets can help avoid digital bankruptcy or loss through theft, warns cryptocurrency storage provider CompoSecure.

Cryptocurrency has been an increasingly colloquial term since the emergence of Bitcoin in 2009. Since then, many cryptocurrencies have joined the digital asset market and, despite the recent drop in valuations, the market value of the cryptocurrency has skyrocketed.

Market watchers have pegged the size of the global cryptocurrency market at $1.49 billion in 2020. Some predict it will reach $4.94 billion by 2030, growing at an annual growth rate compound (CAGR) of 12.8% from 2021 to 2030.

The cryptocurrency market represents the start of a new phase of technology-driven markets that can potentially challenge traditional market strategies, longstanding practices in business organizations and determined regulatory outlook, according to Vantage. MarketResearch.

Cryptography control

Cryptocurrencies have the innovative potential to allow people access to a global payment system in which participation is only prohibited through access to technology. This could replace traditional standards based on having a bank account or credit history.

However, buying and selling cryptocurrencies and using digital currency to pay for goods in the physical world is not the same as opening a bank account and depositing a paycheck. A Coinbase announcement may have dislodged the elephant in the crypto storage room.

Coinbase is an application that allows users to buy and sell various cryptocurrencies – Bitcoin, Ethereum, Litecoin and many more – and allows users to convert one cryptocurrency to another. Users can also send and receive cryptocurrency to and from other people.

In its 10-Q filing last month, Coinbase disclosed that it would have the right to hold its retail users’ crypto assets as property of the bankruptcy estate, should the company file for bankruptcy.

So what about the crypto providers and digital vaults that hold your crypto funds?

This disclosure drives awareness and highlights the importance of self-guarding, according to Adam Lowe, Chief Innovation Officer of CompoSecure and creator of Arculus.

“As cryptocurrency becomes more mainstream, many people are jumping feet first and not researching and educating themselves properly. It is important for users to know how their cryptocurrency works, which owns it and what control they have over their digital assets,” Lowe told the E-Commerce Times.

Cryptographic cold storage solution

CompoSecure is a pioneer in the premium payment card industry. The company has also developed and provides an emerging digital asset and cryptocurrency storage and security solution it calls Arculus.

The new cold storage wallet solution approach to securing crypto uses the name of the ancient Roman god. Arculus was considered the keeper of safes and vaults that the Romans relied on to provide protection for their most prized possessions.

The company now applies this same nomenclature. Arculus is the contemporary embodiment of this watchful deity, ensuring the safe and solid security of critical digital assets and identity.

Think of this storage solution as a token, much like the physical device that some people rely on to keep their computers locked up. For cryptography, ownership is tied directly to the owner’s private key.

For example, if you buy crypto through an exchange and leave it there, you are trusting the exchange to give you your digital assets when you ask for it. But since they retain ownership of the private keys, the exchange has full control over whether or not to comply, Lowe warned.

“That’s why self-custody wallets are important. By storing your private keys in a self-custodial wallet, such as a hardware wallet, only you have full ownership and control of your cryptocurrency and other digital assets. As they say, your keys, your crypto,” he explained.

Hassle-free ownership and access

Dealing with digital assets is not the same as walking into your local bank. Crypto security works very differently. When a traditional bank is insured by the Federal Deposit Insurance Corporation (FDIC), if the bank is robbed, defaults or goes bankrupt, deposits are protected up to at least $250,000 per depositor.

This is not the case with cryptocurrencies. These digital assets belong to an unregulated asset class that does not benefit from the guarantees of traditional fiat currency. The crypto is not currently subject to FDIC protection, Lowe noted.

“From now on, if your cryptocurrency is hacked, it is gone. This is the main reason why it is important to properly secure and protect your offline digital assets,” he advised.

There are no holistic regulations governing cryptocurrency. This is why cryptocurrency is a very volatile asset.

“The Biden administration is discussing US regulations. Although we expect to see movement in this direction, it may take some time before widely accepted regulations are in place,” he added.

Hold the right card

CompoSecure’s recently launched storage hardware wallet allows consumers to self-custody and manage all of their digital assets in one place offline. This approach gives ownership of the encryption keys only to the user.

Arculus NFT wallet support
Arculus Wallet product features now include NFT support. (Image credit: Business Wire)

The company’s innovative solution is the Arculus Key Card which uses a CC EAL6+ secure element to encrypt and store your digital keys. It is not connected to anything. If you lose it or it’s stolen, no one else can use it.

When a cryptocurrency owner makes a transaction in the Arculus Wallet app, the user must tap the keycard on their mobile device. This is an important security step in the three-factor authentication that Arculus uses to keep encryption keys secure.

The card communicates with the wallet app to allow secure near field communication (NFC). It involves no Bluetooth, no Wi-Fi, no USB, and no cords.

CompoSecure on Tuesday announced the same approach to supporting non-fungible tokens (NFTs).

Cash out on Crypto

Dealing with cryptocurrency issues can become a bit of a rabbit hole. The deeper you dig, the deeper you fall into a money pit. To ease the transition to crypto-banking, we asked Adam Lowe to shed some light on the subject.

E-Commerce Times: Do Crypto Platforms Offer Digital Protections?

Adam Lowe: Some cryptocurrency platforms provide types of cyber or crime insurance, but like most insurance policies, there are limitations and loopholes.

So, do consumers need to understand the basic guidelines for ownership of digital assets and who holds the keys to crypto?

Low: The most important thing to understand is who owns your keys owns your cryptocurrency. Consumers should educate themselves about assets on deposit versus non-custodial assets.

Additionally, using hot exchanges or wallets that use a continuous internet connection keeps the door open to threats of hacking and theft.

It is also essential to use multi-factor authentication (MFA). Three-factor authentication is extremely valuable because it ideally examines something that you are, such as biometrics, which can be a fingerprint or facial recognition. This requires something you know, like a personal identification number or PIN.

Finally, it needs something you own, like our Arculus keycard. This extra security step is crucial to ensure that only you have access to your assets.

How does self-care work?

Low: This means that you own your private keys. Keys are what provide access to full control of someone’s digital assets instead of trusting a third party to be the guardian and arbiter of your digital assets.

Using a hardware wallet, such as Arculus, will provide self-custody as only you can access your private keys and manage your digital assets.

What makes this method different from other custodial agreements with crypto brokers?

Low: Crypto brokers and centralized exchanges are third-party custodians. They have control and access to your private keys to buy, move and invest your digital assets accordingly. Non-custodian agreements convey keys and limit layers of protection to the end user.

How can self-preservation protect consumers against online hackers and preserve their digital assets even in the event of bankruptcy?

Low: With self-custody, no one can access your digital assets without your consent. This provides the necessary level of protection against hacks.

When it comes to an individual user going bankrupt, cryptocurrency is not considered income but rather property. Bankruptcy law is complex and very factual, so I can’t give you any guidance on what might happen to cryptocurrency if a user goes bankrupt.

Is crypto investing for everyone or only for those who can afford to lose?

Low: Cryptocurrency is currently being adopted at a faster rate than the internet. It becomes mainstream. For some, this is their first investment. But like any investment, there is a risk of loss. As long as people understand the lack of regulation and high volatility, they can invest according to their comfort level.

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