Cold Wallets: Ideal Option to Secure Your Platform’s Crypto Assets

| November 17, 2023

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As a new asset class, cryptocurrencies represent cutting-edge innovation in finance, thanks to their decentralized, secure, and transparent nature. Its very characteristics also make it a volatile instrument whose value is purely dictated by market forces. As the applications of cryptocurrencies and their underlying blockchain technology continue to increase, so has investor interest in them.

The rising interest in cryptocurrencies and the value they represent have got many people interested in acquiring and trading these digital assets. As a result, the demand for crypto exchanges and trading platforms has risen to record levels. At the same time, various businesses and institutions have chosen to diversify their assets by increasing their cryptocurrency holding, all in anticipation of the value appreciation expected to happen over time. These developments have led to a surge in traffic as well as transaction volumes on crypto platforms.

With crypto exchanges handling huge volumes of crypto assets, they continue to remain attractive targets to cybercriminals looking to make a quick buck by exploiting possible vulnerabilities on these platforms. Faced with constant threats, crypto platforms, investment houses and enterprises dealing with crypto assets are in need of secure crypto wallet infrastructure to safeguard their holdings.

Securing Crypto Assets with the Right Type of Wallet

Wallets are specialized applications for storing and managing crypto assets. They store the private keys and allow users to interact with all the on-chain digital assets associated with the key. To ensure two-way interaction, crypto wallets generate public keys based on the private key stored within, to act as a public address to accept incoming transactions.

Ownership of the private key signifies ownership of all the cryptocurrencies associated with that key, making it very important to safeguard them. There are multiple types of crypto wallets that differ from one another based on the key management techniques. In an enterprise setting, the wallets can be classified as hot, warm, and cold wallets. In hot wallets, the private keys always remain online while cold wallets keep the private keys in their original form completely isolated from the internet. Meanwhile, warm wallets are a version of hot wallets with better security and in some cases, the private key is connected online for a short duration to execute transactions.

Each wallet type comes with its own advantages and disadvantages. Hot wallets are generally faster and easy to use while cold wallet operations can involve multiple steps. Meanwhile, warm wallets are a more secure form of hot wallets with the private keys sparingly connected online, only at the time of executing transactions.

Securing funds With a Combination of Crypto Wallets

The differing performance and security features of wallet types make it hard for crypto platforms to rely solely on one wallet type to meet all their storage and security requirements while ensuring smooth operations. As a result, they implement a combination of different wallets as part of a sophisticated wallet infrastructure to balance the security of their holdings and the uninterrupted performance of their platform.

A typical wallet infrastructure includes a combination of hot, cold, and warm wallets where hot wallets handle the immediate requirements associated with sending and receiving cryptocurrencies while the cold wallet secures a majority of the assets held by the platform. Meanwhile, warm wallets act as intermediaries by holding reserve funds to refill hot wallets whenever their balance goes down. These warm wallets are periodically refilled from cold wallets, keeping their activity to a minimum.

Among all the wallets that are part of an enterprise wallet infrastructure, cold wallets hold a majority of the funds, and for a very good reason. Best operating practices require crypto platforms to maintain just enough liquidity on other wallet types that are part of the infrastructure. A typical hot wallet never holds more than 5% of the platform’s total funds at any time. Warm wallets generally hold similar amounts or a bit more, with some also supporting recirculation of excess funds received by deposit wallets from platform users.

What Makes Cold Wallets Interesting?

Cold Wallets are considered the safest among all crypto wallet types as they remain disconnected from the online world. With private keys never coming online, the chances of them being compromised either by hacks or leaks are almost none, at least until the best practices are followed. Moreover, they provide users with total control over their private keys to ensure a truly decentralized experience which is often neglected when it comes to cryptocurrency storage. By maintaining the majority of the funds in a cold wallet, the wallet infrastructure limits the risk exposure of the platform’s reserves to cybersecurity threats.

There are different types of cold wallets, ranging from a simple low-tech paper wallets to air-gapped machines and more advanced hardware wallets. As the name suggests, paper wallets are basically pieces of paper with the private key and its corresponding public key printed on them. These wallets are never online and as long as the private key is not entered into an online wallet solution, the crypto assets or funds stored in them can’t be accessed. Until recently, setting up cold wallets on air-gapped devices was widely practiced until HSM-based hardware wallets became popular.

When setting up a cold wallet on an air-gapped device, the user creates a wallet by generating a private key offline. The machine on which the wallet is created is never connected to the internet or other machines either physically or over wireless networks. Transferring funds from such cold wallets requires a multistep process where the transaction needs to be created on a device with an internet connection, followed by retrieval of transaction details along with current nonce on a USB drive or as a QR for signing by the wallet on the air-gapped machine and then transferring the transaction back to the connected device for broadcast.

In both instances, executing transactions is a multi-step, time-consuming process. At the same time, if paper wallets aren’t stored carefully, they may get destroyed or if someone gains physical access to the paper wallet, they can easily clear out all the funds in no time. Meanwhile, if proper precautions like using high entropy secrets, strong KDF parameters, and encryption protocols aren’t taken during the key generation process for an air-gapped machine, it may lead to the creation of weak private keys and associated public keys that can be easily compromised.

The introduction of HSM-based hardware wallets has made cold storage of crypto assets a lot easier. The hardware security modules implemented in these devices allow users to sign transactions on any connected device without revealing the private key. As long as the recovery phrase is secured and physical access to the device is controlled, the chances of a hardware wallet getting compromised are very slim. The security of cold wallets can be further strengthened by introducing additional redundancy in the form of multisig configuration which prevents transactions with a single private key in case it is lost or stolen.

Adopting Only the Best Practices in Liminal Smart Cold Wallets

Enterprise crypto asset storage and management solutions provider, Liminal incorporates the best wallet handling practices along with the most reliable wallet infrastructure to secure crypto assets stored in them. The HSM-only multisig cold wallet infrastructure with customizable storage and transfer policies enables it to provide the highest level of security to crypto assets stored in them. Further, the Liminal Signer retains the final signing authority as part of an automated process that gets triggered only if the transaction initiated conforms with the declared transaction policy.

Having Liminal’s Smart Cold Wallets as part of any platform’s wallet infrastructure offers the highest imaginable level of security for any crypto platform’s funds while providing a much easier, and quicker way to process transactions in and out of cold wallets.

Wish to adopt the Liminal Smart Cold Wallet Solution for your platform? Fill out this form or reach out to us on any of our available communications channels for more information.

Learn more about Liminal here.

More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 


Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture