How to store the cryptocurrency properly?

Crypto custody has always been a huge bottleneck for large institutions who want to invest in crypto like btc, eth, etc. Storing millions of dollar in a piece of paper sounds ridiculous to most people. What can we do on top of putting hardware wallets or paper wallets in a safe? Qualified crypto custodians like Coinbase and BitGo has revealed how they provide solutions for secure crypto storage.

Coinbase

They shared their solution to WIRED during an interview. In short we can conclude the following things Coinbase did:

• Set up a faraday tent that can block any signal to prevent hacking (taking internet off)
• Running a shielded power supply to smooths out power fluctuations that may leak any data
• Linux-based laptops with hard drives and WiFi card removed are used to generate keys. The laptops will be destroyed after private keys generation.
• Keys are encrypted and encoded into a series of QR codes.
• QR codes will be stored in secure facility and backups will be scattered around the world.

The solution is basically an advanced version of paper wallet, which eliminates every possible vulnerabilities during the generation of private keys. The rigorous procedures of key generation ensure no hackers can obtain any information without physically break into the storage facility.

BitGo

Coinbase shared how State-of-the-art hardware wallet for cryptocurrency looks like. On the other hand, BitGo shared their view in a different approach. Apart from secure hardware and software, the procedures and plans for risks are important for keeping things safe.

For example, what if a bad guy put a gun to your child’s head and ask for money. Therefore, their controls make it difficult to get the money out (increasing the steps and independent people required to withdraw coins). They also have to meet externally audited regulatory requirements and gain certifications. That's what institutions need for securing a trillion dollars in crypto.

Conclusion

There are already a few custody providers in the market. However, hedge funds usually diversify custody arrangements with 15-20 custodians to limit their exposure. With increasing interest from institutions in crypto, the supply of custodians may not be able to meet the demand. We are expecting to see more custody service providers in the future.

Reference:

"Why you need a physical vault to secure a virtual currency", Tim Simon, WIRED, 29/08/2018
https://www.wired.com/story/coinbase-physical-vault-to-secure-a-virtual-currency/

"The $1 Trillion Wallet: BitGo's Big Plan to Secure the Biggest Bitcoin Fortunes", Ian Allison, Coindesk, 01/10/2018
https://www.coindesk.com/the-1-trillion-wallet-bitgos-bid-to-bring-bitcoin-to-wall-street-and-beyond