Things to Consider While Setting Up your Enterprise Wallet Infrastructure

| November 17, 2023

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Enterprise Wallet Infrastructure

Wallets play a crucial role on any crypto platform as they are the gateway between the crypto and the physical world. Anyone taking part on these platforms will either have crypto holdings or be on the verge of acquiring some. Most of these platforms are centralized, adopting custodial wallet features for ease of use. Similarly, the increasing adoption of crypto assets across the table means even individuals and other businesses today are in need of sound crypto wallets that offer them a combination of convenience as well as security.

An obvious question everyone has on their mind is “Which wallet do I pick to secure my crypto assets?”

In our recent blog post, we mentioned the three basic types of crypto wallets — hardware, software, and paper wallets. But the story of wallets does not end there. Crypto wallets can be further classified based on the type of security features used to authenticate transactions. While the choice is often straightforward for individuals handling low volumes of crypto assets, things are quite different for crypto institutions and other crypto-supporting businesses of scale.

Now, let us take a look at different types of wallets based on transaction security, which is an important aspect never to be ignored. We will also outline how a combination of such wallets is used by crypto platforms in an enterprise setting to deliver optimum results while safeguarding the assets in custody.

If you haven’t read our earlier blog post on crypto wallets, you can read it here.

Single Signature Crypto Wallets

The most widely used category of crypto wallets, these single signature crypto wallets have a single private key to authorize transactions. On these wallets, a single user with just one wallet application can access the respective stored crypto assets on the blockchain and initiate transactions.

It is a convenient, considerably secure setup with one disadvantage. The presence of just one private key creates a single point of failure where in an unfortunate circumstance it gets compromised, and all the funds associated with the wallet may be lost.

To eliminate such risk, users holding a considerable amount of assets and crypto platforms holding custody of a large volume of funds tend to opt for better alternatives like Multi-Signature wallets or Multi-Party Computation wallets.

Multi-Signature Crypto Wallets

Multi-Signature or MultiSig crypto wallets require a combination of two or more private keys to sign a transaction. These keys can be held by a single person, or multiple people to ensure redundancy and even accountability in a business setting. These wallets can be set up in 2 of 3, 3 of 4, 4 of 5, or any other configuration that decides the total number of associated private keys and the minimum number of signatures required to access the funds. MultiSig wallets are like a safe with multiple locks that need to be opened by more than one key to access what’s stored inside.

This makes wallets more secure, and highly improbable for hackers to obtain multiple private keys at once. And in the event, that one of the keys is indeed compromised, the funds will still be safe. Due to the multi-level authorization structure, multisig wallets also find use in setting up escrow transactions. A simple escrow transaction can be set up with a 2 of 3 multisig wallet where one of the keys held by a third party can be used to mediate a transaction between 2 parties.

Multi-Party Computing Wallets

Commonly referred to as MPC wallets, these crypto wallets are among the most secure applications where a single key is split across multiple devices by a specialized algorithm. The algorithm uses the inputs provided by parties to the transaction to generate an entire private key that is necessary to transfer funds.

Although the functioning of MPC wallets is like that of multisig wallets, they are different. MPC wallets produce dynamic keys, and at no time does any single machine have in its possession the entire key. Instead, they are created as distributed key shares, retained on the machines on which they were generated, which further enhances the security in comparison to multisig wallets.

Based on the needs, individuals, as well as crypto businesses, use a combination of these different types of wallets to strike a balance between security and usability to ensure seamless transactions. It also opens an additional classification criterion based on the roles played by each wallet type in a comprehensive enterprise wallet infrastructure.

Major Parts of an Enterprise Wallet Infrastructure

A typical exchange wallet infrastructure will have three distinct types of wallets to support smooth operations and quick, interrupted service to its users.

Hot wallets

These are online wallet applications that support all the deposits and withdrawals happening on a platform. They are always-online software wallets with private keys under the control of the platform and stored on the internet. By always ensuring the availability of private keys, hot wallets can execute near-instant transactions to meet hundreds of withdrawal requests in no time.

However, storing the private keys online provides ample opportunity for cybercriminals to look for vulnerabilities and exploit them. As a result, platforms incorporating such infrastructure tend to limit the funds held in hot wallets at any point in time.

Cold Wallets

Unlike hot wallets, the private keys of cold wallets always remain isolated from the internet. They are connected to online devices only when a transaction must be carried out. As a result, they are the most secure form of wallet with private keys protected from the risk of being compromised by cybercriminals. Individuals and businesses use cold wallets to secure the majority of their crypto assets. Hardware wallets and paper crypto wallets are good examples of cold wallets.

Crypto exchanges and trading platforms periodically sweep excess funds received in their hot wallets to cold wallets. Similarly, whenever the need arises, they refill hot wallets with funds drawn from the cold wallets in a process known as wallet refill. Wallet refills are generally manual processes involving large wallet refill teams to monitor fund levels in the hot wallets and refill them when it falls below a threshold.

Warm Wallets

Warm wallets are mostly software wallets that act as a bridge between hot and cold wallets, especially during the refill process. A software wallet with multiple levels of authentication. While initiating wallet refills, platforms transfer funds from the cold wallet to the warm wallet, which will be subsequently used to replenish hot wallets whenever necessary. The wallet refill team will have access to the warm wallet, while cold wallets are managed only by trusted representatives and top-level executives of the organization.

Liminal Presents the Ideal Way to Store and Manage funds

We have seen the variety of crypto wallet applications out there, each with its own advantages and disadvantages. It offers enough evidence to conclude that there is no one-size-fits-all approach while adopting the right wallet solution to ensure the safety of funds without compromising on convenience.

Liminal offers a tailormade suite of solutions to combine the best of security and usability for both individuals and enterprise users. The Liminal suite incorporates secure and scalable decentralized crypto storage and smart automation solutions for businesses, helping them potentially save a considerable amount of time and resources. A good example is the Liminal Smart Wallet Refill, which automates the entire hot wallet refill process to secure it against potential vulnerabilities while allowing the platforms to allocate their workforce for better things than monitoring and replenishing hot wallets.

Sounds interesting? Fill out this form to explore which solution fits your needs or visit www.liminalcustody.com

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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. 

Staking-as-a-Service

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