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Choosing the best wallet solution is the most important choice your company will need to make when beginning its blockchain journey. You might be tempted to ask your resident blockchain expert or family member for advice if you’re only investing for yourself.
However, a business that invests on behalf of itself or clients needs to take much more into account when selecting an enterprise digital asset wallet solution. In most cases, a commercial end-user wallet solution won’t suffice, and enterprises should rather seek the services of professional digital asset wallet and custodial service providers.
Enterprise wallet solutions like Cybavo will be able to demonstrate a safe track record, enhanced security and failsafe measures and offer enhanced services such as Ethereum staking, multi-currency support (such as Binance Smart Chain) and insurance.
Let’s take a dive into how these wallets work and what your company should be looking for.
Why Are Digital Asset Wallets So Important?
Whether you’re a company or an individual, when it comes to cryptocurrency, your digital wallet is the most important thing you own. It acts something like a bank account. You need it to send, receive, and store funds. Some wallets can also be used to interact with the lucrative decentralized finance (DeFi) ecosystem.
The problem with wallets is that they are the single biggest point of failure for your cryptocurrency assets. If the seed phrase is lost, or a hacker uses social engineering to gain access to a wallet, all of its assets can be drained. This is a particularly common problem on exchanges. For example, EXMO recently lost 5% of its assets in an exchange hack. In fact, billions of dollars in crypto assets are drained from wallets each year.
This risk is fairly manageable for individuals. They can keep their wallets offline,in cold storage, and protect their seed phrases by not looping others in. For companies, a wallet represents a significantly larger risk. They need to loop more individuals into the wallet’s details, and have a chain of continuity in order to account for the infamous “bus factor.”
5 Essential requirements for digital asset wallet solutions
There are a lot of viable solutions for digital asset wallets, but they vary wildly and may not be suitable for every business. To really understand which solution is best for your business you should look at five criteria.
1. Does It Support The Assets I Need?
Not all services will support every kind of cryptocurrency asset. If your business is only interested in diversifying into Bitcoin, then this is less of a problem. But if you want to take advantage of the opportunities offered by Ethereum, other altcoins and DeFi protocols, you might need something a little more robust.
Most custodial solutions will at least support Bitcoin and Ethereum and usually a small basket of other popular coins. It is also worth noting that wallets that support Ethereum will generally also be able to support ERC20-powered projects like UniSwap, allowing you to diversify your company’s assets into higher risk areas if you so chose.
Typically, businesses will want to choose a service that gives them access to multi-currency wallets. This can either be done through a custodial service or via private wallets directly controlled by your company. One of the better examples of how this process works can be seen on the Cybavo website.
2. Is It Compliant With Local Regulations?
Cryptocurrency has become more mainstream and this has brought increased scrutiny along with it. Crypto has come into sharp focus with regulators. As such, it is more important than ever to make sure everything your business does is above board.
There are typically two easy options to do this. The first is to go with a regulated custodial solution offered by a trusted digital asset wallet and custodial solutions provider, such as Cybavo, or even institutional giants like BNY Mellon. Which provider works best for your business may depend on your local jurisdiction.
3. What Security Is In Place?
Once you have confirmed that the wallet is suitable for your asset choices and local regulations, there is a third major consideration: security. There are a number of important security features that every company should be looking for when selecting a digital asset wallet.
This includes all the usual checks, such as some form of cold storage, proper cybersecurity health checks, and so on. But if you have a large portfolio to manage, the most important consideration is enhanced security measures such as multi-party computation (MPC) and multi-signature protection.
The big problem with non-enterprise wallets is that they only require one code to access, which means there is only one point of failure. This may lead to a complete loss of funds if the user loses or exposes their private key or recovery seed.
Therefore, reputable enterprise-targeted digital asset wallets should offer some form of multi-signature security.
What is multi-party signing?
This means that in order to process a transaction, typically a withdrawal, multiple individuals need to confirm the transaction. Think of it like having four keys that must be turned in order to unlock a safe, each held by a different individual.
There are other more advanced versions of this type of security measure. For example, Fireblocks utilizes multi-layer security. This uses a combination of private key protection layers, with customizable approval protocols that can be set by the client in order to protect their assets.
The takeaway here is that multi-signature security is probably the most important form of security that can be implemented.
4. Is It Designed With Corporations in Mind?
A major consideration is that the service is designed with a corporate structure in mind. An organization can’t allow a single person to control all of their crypto assets, and multiple people need to be able to approve transactions. To get around this, you need a leveled approval process.
For example, Cybavo allows its users to set up a layered permissions system. This allows a company to set up a chain of approvals, where each layer of the process needs to allow a transaction before it takes place. This is important because it will make it easier for a company to integrate their digital wallet into their normal approvals process.
5. Is It Insured?
In traditional investing, there is usually at least some level of insurance on your assets. For example, in the United States, FDIC insurance covers around $250,000 per depositor for normal trading. Cryptocurrency is still not covered by FDIC, which means that it is important to look at the insurance policies of your provider in case the worst happens.
Clients of the custody service BitGo are covered for losses of up to $100 million so long as BitGo protects all of the private keys. This is designed to protect BitGo’s clients in case the custody security fails.
Meanwhile, Cybavo enjoys the backing of S&P AA-rated international insurance giant Lockton Companies, the world’s largest privately held, independent insurance broker.
If you insist on managing your own wallets, or your chosen service doesn’t offer insurance, there are third-party options. One example is Digital Assets Custody’s separate insurance option.
Picking the Right Wallet Solution Is Key
If you ensure that a wallet meets all of these requirements then your business will have taken the perfect first step into the crypto trading world. The wallet solution you entrust your funds with is the single most important consideration for your crypto assets, so make sure you take your time to make the right choice.