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When trying to explain bitcoin or any other cryptocurrency to a family member, you've probably received remarks like, "but bitcoin isn't real, it doesn't exist, I can't touch it". My usual response to that is pulling out a torn piece of paper (aka my paper wallet) which has a bunch of random numbers and letters written on it. I say, "here ya go, you can touch my bitcoin right now".
Just for clarification, my actual paper wallet is kept somewhere safe, not in my back pocket.
Holding your bitcoin on a paper wallet isn't the best option though. The paper can easily be lost or damaged, and it's doesn't offer swift access to your cryptocurrencies. Other storage options include software wallets. These apps can be downloaded on your phone/computer and act as online digital wallets to store your crypto. Although, with that option you may or may not be in complete control of your private and public keys. In addition, there may be some rather high transaction fees. Another popular option is to use a hardware wallet, like Trezor or the Ledger Nano S. These small thumb drive-sized devices can be carried around and quickly plugged into your computer for instant access. If the device is lost, there's an easy way to backup and restore all your crypto. JUST DON'T LOSE THAT RECOVERY PHRASE.
Introducing cryptocurrency custody solutions
Custody solutions are the up and coming, new and "improved" alternative for storing your cryptocurrency. Essentially, crypto custody solutions are third parties who offer the service of storing cryptocurrencies (for a fee). It's not recommended to use the exchanges as a place to store cryptocurrencies, and the above options are too much of a hassle for institutional investors to manage. Especially for those individuals who will be managing multiple accounts worth an exceptionally large amount of money.
For this reason, cryptocurrency custody service providers are going to be turning a decent profit. Coinbase, who this summer began offering their own custody service, "estimates $20 billion worth of crypto is sidelined until custody solutions make sense". The U.S. Securities and Exchange Commission (SEC) is diligently working on and rolling out regulation on crypto. This regulation needs to be clarified and implemented so institutional investors can fully begin entering the market.
Custody solutions are much needed for these investors because "if you’re an SEC-regulated fund over $150 million, you’re required to use a qualified custodian. You can’t just take some guy and have him hold your coins for you", states Mike Belshe, the CEO of BitGo. BitGo too offers custody solutions and is the largest bitcoin processor with hundreds of clients across the world.
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Why the market needs custody solutions
When regulation is approved regarding this service and more providers are verified, it's believed that a bitcoin ETF (exchange traded fund) will have an increased chance of approval. From there, the price of bitcoin could possibly make a moon landing.
Until then, one of the SEC's biggest concerns regarding cryptocurrency is the problem of custody. Not only is it difficult for someone unfamiliar with this space to buy crypto, the difficulty ensues when trying to figure out how to store it. An SEC qualified custody provider will drastically improve the crypto management of retail and institutional investors.
Perhaps the number one benefit of custody solutions is the security and peace of mind it offers. Everyone involved in the blockchain/cryptocurrency industry is familiar with the hack on the crypto exchange Mt. Gox. If you are not: read this. There have been multiple other hacks on crypto exchanges around the the world since, and the worry of more hacks still prominently exists. The sad truth is that many individual traders and investors hold sizable portions of their crypto portfolio on exchanges.
Hopefully custody solutions, tailored for retail investors and institutional investors, will fix the few but pressing issues surrounding cryptocurrency storage. If successful, Coinbase and other custody service providers are in for quite an expansion of profits.