Two local companies, Decentralised Capital and Custodian Vaults, have formed a partnership to offer an insured cryptocurrency custody service, claiming it is a first for Australia.
Custodian Vaults is Australia’s largest independent precious metals secure storage service. It also offers to store jewellery, currency, documents, other valuables and data.
Decentralised Capital is a blockchain and investment company. The new service combines physical surveillance, biometric identification, PIN codes, CCTV monitoring and alarm and fire control systems.
CNBC reported that US$1.1 billion worth of cryptocurrency was stolen in the first half of 2018, with unsecured cloud wallets and cryptocurrency exchanges the prime targets.
The most famous hack was in 2014, when Bitcoin exchange Mt Gox filed for bankruptcy after it lost 750,000 of its users’ Bitcoins.
Customers of the new service are offered direct access to their holdings. The service operates through a private WiFi room to allow cryptocurrency transfers in and out.
In a note to clients, K&L Gates lawyers Jim Bulling, Edwin Tan and Maria Downie say the emergence of such custodial services may pave the way for institutional investors to enter the market.
“Institutional investors have been seen to be hesitant as they are concerned about the security of their holdings, especially as they may have to rely on unregulated third party services to obtain and hold their cryptocurrency,” they say.
“We expect these custodial services will soon face regulatory scrutiny.”
A number of these services are available overseas. Last month, Coinbase launched Coinbase Custody, under guidelines issued by the US Securities and Exchange Commission.
Most of these services use a system called cold storage, which means storing digital assets in wallets that operate in an offline environment, not connected to cryptocurrency exchanges or hosted wallets.
The keys that provide access to cold storage are also stored offline.