Institutional investors pay close attention to digital assets such as Bitcoin (BTC) continues to rise above record-breaking levels, reaching near $ 24,000 valuation for the first time in its history.
Recent findings from a Bank of America – Merrill Lynch survey conducted December 4-10, show that about 15% of fund managers with $ 534 billion under management believe Bitcoin is the third most busy transaction be behind long technology stocks and go short on the US dollar. In addition, a recent Fidelity survey found that nearly 36% of respondents, or 774 institutional investors, own crypto assets.
But as Bitcoin continues to attract the attention of professional investors worldwide, security measures, along with insurance guarantees, are becoming more important than ever before. This has especially become the case as more traditional keepers and banks are adding support for digital assets.
Offline security is a must for protecting digital assets
A report Released this year by Big Four firm KPMG, the key move for crypto asset custodians looking to build a sustainable business model is enabling next-generation security and resilience. KPMG’s report notes that this involves incorporating leading cryptographic techniques, including multi-sig, sharding and multi-party computation, and dedicated physical hardware. In other words, online and offline security measures are needed to protect digital assets.
Lior Lamesh, CEO and co-founder of GK8 – an Israeli blockchain cybersecurity company – told Cointelegraph that when it comes to traditional institutions with large amounts of money and reputations to manage, offline security procedures are especially critical to protecting digital assets:
“Because a blockchain is an immutable ledger, organizations must do everything they can to prevent hacks. When it comes to hot wallets, it’s easy to see why these are vulnerable – they are always connected to the internet. However, this is not sufficiently safe for banks and traditional custodians. “
For example, Lamesh said the team of former Israeli military cybersecurity personnel behind GK8 has developed a completely offline solution for traditional custodians and banks looking to protect digital assets. It consists of an ‘air-gap’ cold vault that provides the ability to create transactions on a blockchain network while operating completely offline.
The process of performing blockchain transactions offline eliminates all possible attacks against users’ private keys and provides complete protection against cyber threats, Lamesh said. While not able to disclose all the details, Lamesh shared that this solution is made possible by proprietary cryptography that allows the vault to create, sign and send blockchain transactions in a unidirectional connection, without receiving any digital input that may contain malicious code. Additionally, GK8’s cold safe is backed by $ 500 million insurance coverage.
Traditional players believe that offline storage is a must
One company that uses an offline custody solution is Prosegur, a Spanish security company that acts as a physical security custodian for traditional banks, managing more than $ 360 billion annually.
Last year was the company attacked by Ryuk ransomware, a Trojan virus that encrypts files on a compromised device and typically requires Bitcoin payments to decrypt them. This particular attack is concerning for a number of reasons, but security has become even more of a priority for Prosegur since the company launched “Prosegur Crypto”, a digital asset safekeeping and management service.
Raimundo Castilla, CEO of Prosegur Crypto, told Cointelegraph that Prosegur’s new service is responding to the growing market demand for protecting digital assets, especially as more institutions become involved in crypto.
According to Castilla, the company has explored a number of diverse security offerings, including cloud solutions and hardware security module-based cryptographies. However, he noted that the offline solution was different in that it leaves no risk for possible external attacks as it is completely offline. “It is definitely the most secure solution we have come across and was exactly what we were looking for as security experts,” he said.
Yet companies like Prosegur are not the only ones opting for offline security solutions. OSL, one of the leading digital asset platforms in Asia and a member of BC Technology Group, also uses military-grade offline security protocols to protect digital assets for hundreds of institutional clients and professional investors.
Wayne Trench, CEO of OSL, told Cointelegraph, “These include military-grade online and offline security protocols, strict anti-money laundering and Know Your Customer requirements, market surveillance, and segregation of assets from customers.”
Trench further shared that OSL has some rigorous onboarding procedures, along with full insurance cover in the event of both hot and cold wallet crimes. Security measures are mandatory for OSL, which recently became one of the first publicly traded companies to be licensed by the Hong Kong Securities and Futures Commission to operate regulated brokerage and automated trading services for digital assets.
Is offline protection enough?
While offline security procedures are necessary to protect billions of dollars in digital assets from cyber threats, there are some challenges worth recognizing.
For example, cold storage facilities are inherently less fluid than online solutions. While some investors may not consider this a deal breaker, KPMG’s “Institutionalization of Cryptoassets” is report notes that digital assets typically make use of public key infrastructure. However, PKI has created challenges in disaster recovery in the past. KPMG’s report points out that challenges such as these are greater for crypto operations, which depend on the availability of public and private keys to transfer assets.
The report further states that organizations managing key pairs should develop disaster recovery plans for securing private keys within every storage tier, for every type of digital asset. However, traditional techniques such as using a hardware security module as mentioned may fall short given its physical dependence on it. The report states:
“A destroyed or not available [hardware security module] can mean lost or unavailable crypto assets. In addition, other traditional resilience techniques, such as high availability, either compromise security or are simply not technically possible for a cold wallet with air vents. “
Despite concerns, traditional custodians and banks are well aware that security is the most important feature in supporting digital assets. Still, this was a challenge to navigate, as Castile noted that the depository market typically offers standard cybersecurity solutions that have not always been invulnerable to the risk of loss from excessive physical access.
As such, Castilla explained that going forward solutions must transparently demonstrate not only the physical protection of assets and access to systems, but also the cybersecurity of the asset management space: “ This is the way to secure transactions for blockchain. -based assets, as this is one aspect of a huge vulnerability that institutional investors must consider when deciding to hold custody. “