How to set up a crypto wallet?

| November 17, 2023

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Although there are certain parallels between Ethereum/Bitcoin-based crypto wallet and conventional online bank accounts, it’s important to recognize that cryptocurrency protocols operate in a fundamentally distinct manner compared to platforms such as mobile wallets and traditional online banking systems.

For instance, cryptocurrency transactions are permanent and cannot be reversed, necessitating significantly more stringent security measures to safeguard the digital assets stored within a wallet. However, this is not the case with most traditional digital payment and banking systems. 

Still, if you’re familiar with the traditional wallets and banking system, then setting up and operating crypto wallet won’t be a hassle for you.

Types of Crypto Wallets 

There are four major types of crypto wallet currently available in the market:

Software Wallets

Software wallets are available as both desktop and smartphone applications. These cryptocurrency wallets are installed on personal computers or mobile devices and enable users to access their cryptocurrency holdings, conduct transactions, check balances, and more. Some software wallets also offer additional features, such as integration with cryptocurrency exchanges, when provided by exchange-created crypto-wallet apps.

Numerous mobile wallets present in existing crypto wallet infrastructure support immediate in-store purchases through methods like near-field communication or QR code scanning. Software wallets are often referred to as “hot wallets,” or hot wallet crypto storage platform and they are typically free to use, making them an appealing choice for investors and hodlers. 

Hardware Wallets

Hardware wallets, commonly known as “cold wallets,” are physical devices that closely resemble USB drives in appearance and function. These crypto wallet hardware devices securely store the private keys required to access digital asset holdings on a blockchain or any web3.0 protocol.

Hardware wallet for cryptocurrency is considered by many to be the most secure way to store digital assets because they are offline and physically accessible. Unlike hot wallets, which are constantly connected to the internet, hardware wallets provide an added layer of security against remote hacking attempts – that makes it the best crypto wallet in India and across the globe.

However, hardware wallets do come with a few downsides. They can be relatively expensive, especially products from reputable manufacturers like Ledger and Trezor. Additionally, if you lose your hardware wallet, it can be a critical situation. It’s crucial to set up a recovery seed when using a hardware wallet to ensure you can regain access to your cryptocurrency in case of loss.

Custodial Wallets

Custodial wallets are favored for their simplicity and ease of use. They are often referred to as “exchange wallets” because they are hosted directly on cryptocurrency exchanges where users purchase their digital assets. They are considered to the most convenient crypto wallet India. If you’ve ever bought cryptocurrencies on centralized exchanges and opted to keep your holdings there, you’ve essentially used a custodial wallet – one that is offered by the exchange.

With custodial wallets, the exchange typically manages your private keys on your behalf. However, since this private information is stored online, it can increase the risk of successful cyberattacks. Additionally, custodial wallets may have limited functionality, limiting your ability to use your cryptocurrency for certain purposes, such as buying NFTs.

Non-Custodial Wallets

Non-custodial wallets provide users and crypto holders with full control over their cryptocurrency holdings. These cryptocurrency wallets often offer greater flexibility and functionality compared to custodial wallets, making them a preferred choice for activities like purchasing NFTs or staking cryptocurrencies.

In a non-custodial wallet, you are the sole custodian of your private key, and as such, it is your responsibility to take strong security measures to protect it. Losing your private key can result in the permanent loss of access to your cryptocurrency holdings.

How to Set up a Crypto Wallet?

Today, setting up any type of cryptocurrency wallet account is quite straight forward. When it comes to investing in or using cryptocurrencies, opening a cryptocurrency wallet account is a crucial first step. To establish a crypto wallet Indian or global account, you’ll need to consider a few key factors, such as choosing a crypto wallet infrastructure provider, providing personal information, and having some cryptocurrency ready to store in your wallet. Whether you opt for crypto wallet hardware, software, or paper wallet, this guide will assist you in understanding the prerequisites for opening and setting up a crypto wallet account. 

Enter Personal Information for KYC/ AML

To initiate all types of crypto wallet account, you will typically be required to provide the following personal details to adhere to anti-money laundering (AML) and know-your-customer (KYC) regulations:

  1. Full name
  2. Email address
  3. Phone number
  4. Home address

Public and Private Keys – Explained

To operate both the cold and hot wallet crypto platform effectively, you must grasp the concept of public and private keys:

Public Key: 

The public key serves as your wallet’s address, enabling other users to send cryptocurrency to you. It’s similar to sharing your personal mailing address for receiving mail, but not password.

Private Key: 

Think of your private key as the secret password to your wallet, a secret that only you should possess and should not share. If someone gains access to your private key, they gain control over your funds and assets. These keys are pivotal to the security and functionality of your crypto currency wallet, so safeguarding your private key is of paramount importance.

Difference between individual and institutional wallet setup For individual:

Research and Select a Wallet 

Begin by conducting thorough research on various types of crypto wallets. Consider essential factors like wallet security, compatibility with your operating system, user experience, and community reputation. Seek out reputable crypto wallet infrastructure providers and read reviews to make an informed choice.

Once you’ve made your selection, visit the official website of your chosen crypto wallet hardware/ software provider. Always ensure you’re on the legitimate website by verifying the URL, as fraudulent sites may closely resemble the authentic ones. If you opt for the best crypto wallet in India – that is a hardware crypto wallet, also confirm that it arrives sealed, and the packaging remains untampered with.

Install the Wallet

For software crypto currency wallets, locate the download section on the cold/ hot wallet crypto provider’s website and choose the version compatible with your operating system. After downloading the wallet software, follow the installation instructions provided by the wallet provider.

If you’ve acquired a hardware wallet, follow the manufacturer’s setup instructions. Typically, this involves connecting the device to your computer or smartphone using the included cable or Bluetooth and installing any necessary software.

Configure the Wallet and Enhance Security

Upon launching the custodial/ non-custodial wallet software, you’ll usually be presented with the option to either create a new wallet or import an existing one. If you’re setting up a new wallet, follow the on-screen prompts to generate a new wallet address and private key. If you already possess a crypto wallet, select the import option and provide the required details, such as the recovery phrase or private key.

Remember to back up your wallet at this stage to safeguard it from loss or damage. Adhere to the wallet provider’s guidelines for backing up your wallet’s recovery phrase or creating a secure wallet backup file. Store this backup in a separate and secure location.

Prioritize the security of your software or hardware wallet for cryptocurrency by setting a robust password for the wallet software. Additionally, enable any supplementary security features offered by the crypto-wallet provider, such as two-factor authentication (2FA) or biometric authentication.

Fund the Wallet

To commence using your wallet, you’ll need to transfer cryptocurrency into it. Obtain your wallet’s public address, often displayed as a QR code, and share it with the sender, which could be your personal cryptocurrency exchange account or another source, to receive funds.

Follow these steps diligently to successfully set up and begin using your cryptocurrency wallet.

For Institution: 

Start with a valid business idea:

The journey of cryptocurrency wallet app development commences with the birth of a unique and viable business idea. Given the nascent state of the cryptocurrency industry, inspiration often arises from personal experiences, as we engage with varying challenges in the crypto landscape.

As you confront new hurdles in your crypto endeavors and seek solutions, it’s essential to engage in competitive research. It’s possible that others have already introduced products to tackle the issues you’ve encountered. In such cases, thoroughly analyze these existing products and brainstorm ways to enhance them, making them more attractive to your target audience.

Identify your development partner:

Once you know that your crypto app concept holds promise and demand, the next step is to secure a dependable development partner for your cryptocurrency wallet infrastructure.

Ideally, your quest should lead you to a comprehensive solution provider—an experienced cryptocurrency wallet development agency with a proficient team capable of shepherding your product idea from inception to completion such as Liminal. 

In an ideal partnership, you should initiate a discovery session with your chosen team to share your concept and obtain their insights on technical feasibility, potential challenges, and the optimal strategic roadmap. Such collaboration signifies a partnership, where your success becomes a shared goal.

Construct an interactive prototype:

With your crypto wallet India development team in place, the next stages involve: Crafting an interactive prototype of your crypto-app. Developing a minimum viable product (MVP). Launching to the public and providing ongoing maintenance. 

Why invest in creating a prototype before proceeding to MVP development? Coding can be costly, particularly in the realm of blockchain development, where demand outpaces supply. With limited qualified blockchain developers available, a prototype offers a cost-effective means of fine-tuning features and ensuring a user-friendly UX for your crypto wallet, maximizing its traction at launch. Additionally, it serves as a valuable tool for pitching your idea to potential investors.

But what precisely is an interactive prototype? It’s a virtual representation of your app, complete with interconnected screens, allowing test users to interact with it and provide valuable feedback for improvement.

Develop and test your Minimum viable product:

After rigorous testing of the prototype, it’s time to transform your vision of a custodial/ non-custodial cryptocurrency wallet into reality. In this coding phase, trust in your development team is paramount. Key decisions, often guided by your development partner, include determining the type of crypto wallet you envision—custodial or non-custodial. Selecting the initial platforms for deployment. Consider examples like MetaMask, which launched as a browser-based extension to cater to desktop-centric blockchain users.

Product launch and maintenance:

We’ve now reached the final step of crypto currency wallet development. The primary objective of creating a cold/ hot wallet crypto platform is to onboard new users and enable them to derive value from your DeFi app or actively participate in the broader crypto ecosystem.

As is customary for most mobile applications, when you’re ready to go public, you must upload your custodial/ non-custodial wallet apps to the App Store and Google Play while transitioning your server-side infrastructure to a production-ready environment. This ensures a seamless and secure experience for your users as they embark on their crypto journey.

 

Institutions and Individuals: Choosing wallet types based on transaction type:

Custodial Crypto Wallets:

Most web-based cryptocurrency wallets fall into the custodial category. When you buy cryptocurrency for the first time, it often lands in a custodial exchange wallet. In this scenario, the exchange serves as your custodian, responsible for securely holding your keys and funds. It’s crucial to opt for a reputable custodial crypto wallet infrastructure, particularly those provided by major U.S. crypto exchanges, where customer funds are typically stored in secure cold storage hardware wallets.

While custodial wallets might be perceived as less secure than non custodial wallet alternatives, many prefer them due to reduced responsibility and enhanced convenience. Losing the password to a non-custodial wallet can have dire financial consequences, whereas forgetting your exchange account password often allows for a reset. It’s essential to follow the exchange’s recommended security measures to safeguard your digital assets within your crypto wallet.

Other custodial wallet options include investing in crypto ETFs and ETPs. These newer options are gaining popularity, especially among institutional investors seeking exposure to cryptocurrencies and tokens without the need to manage keys or engage in blockchain transactions. However, they typically entail higher fees and offer exposure to only a fraction of the cryptocurrencies and trading pairs available on exchanges.

Non-Custodial Crypto Wallets:

Non-custodial crypto wallet India grants you complete control over your keys and, consequently, your funds. While some individuals store significant amounts of crypto on exchange accounts, many find greater peace of mind in non-custodial wallets, eliminating intermediaries between them and their crypto.

Non-custodial wallets can take various forms, including browser-based wallets, software installed on mobile devices or desktops, and hardware devices. Among these options, crypto wallet hardware platforms are considered the most secure. They resemble USB storage devices with screens and physical buttons.

When not in use, these hardware non-custodial crypto wallets remain offline and must be connected to a computer or mobile device via USB ports or Bluetooth for transactions. Although they technically connect to the internet during a transaction, the signing of the transaction by the private keys occurs offline within the hardware wallet before being transmitted online to the blockchain for confirmation. Consequently, even if your computer or phone is infected with malware, your funds remain inaccessible when using a non-custodial hardware crypto currency wallet.

However, non-custodial wallets require you to trust yourself to safeguard your keys and wallet. Losing, destroying, or forgetting your wallet without taking precautions to regenerate it could result in a loss of access to your funds. For significant balances in a non-custodial wallet, it’s essential to password protect it and store that password in a secure, private location. Additionally, prevent anyone from gaining physical access to your non-custodial crypto wallet, as discovering the PIN or password could lead to unauthorized fund withdrawals.

In the event of losing access to your crypto wallet or forgetting the password, there is a recovery procedure. Typically, upon setting up your software or hardware wallet for cryptocurrency, you generate a sequential string of 12, 18, or 24 words, known as a “seed phrase.” Safeguard this recovery phrase as you would your password, as it can be used to regenerate your cold/ hot wallet crypto platform on another device, granting access to all crypto balances associated with your private keys, even without access to the original hardware wallet.

How to safeguard private keys?

Private keys should be securely stored in non-custodial wallet or cold storage when not in active use. This practice eliminates any potential access points for hackers since there is no active connection. When you intend to use your keys, only transfer the necessary amount to your wallet, utilize the crypto wallet hardware keys for your intended purpose, and then promptly return them to cold storage for enhanced security.

Institutions and Individuals: How secure your crypto wallet setup should be?

Ensure Trustworthiness in Your Wallet Provider

Prior to importing your keys or initiating cryptocurrency transfers to a new crypto wallet hardware and software, it is vital to verify the reputation of your chosen cold and hot wallet crypto platform provider within the industry. Go through reviews from impartial respondents for better insights. Beyond favorable reviews, examine usage statistics to gauge the custodial and non custodial wallet’s popularity within the broader crypto community.

Minimize Reliance on Centralized Exchanges and Custodial Services

Despite the existence of reputable custodial crypto wallet infrastructure dedicated to user security, a few unfortunate incidents emphasize the risks associated with solely entrusting a significant portion of your funds to a third party (e.g., the Mt. Gox and FTX incidents). Consequently, crypto users should exercise caution and limit the use of custodial services. Instead of relying solely on a single central wallet, consider a diversified approach. Utilize several types of crypto wallets, including hardware (cold) wallets for savings, self-custody mobile wallets (hot) for transactions, and custodial wallets on an as-needed basis. By spreading assets across multiple wallets, you enhance your security.

Implement Robust Wallet Backups

It is imperative to record your recovery phrase immediately upon creating a new crypto wallet hardware or software or generating a new key. Self-custody wallet providers do not store or retain seed phrases to grant you full control over your assets. Failure to record your seed phrase before losing access to your crypto wallet India may result in irretrievable funds. Safely store your recovery phrase using methods such as lock boxes, safes, metal plates, or traditional pen and paper. However, avoid saving it in locations connected to the internet, which could be susceptible to hacking, such as emails, password managers, or note apps.

Leverage Two-Factor Authentication (2FA)

Depending on your wallet provider, consider implementing device-based two-factor authentication (2FA) for enhanced security. Liminal employs 2FA to offer wallet security, requiring you to enter a code generated by the app when signing in.

Employ Multisig Wallets

Multisig wallets, also known as shared wallets, mandate two or more signatures to validate and execute a transaction. These signatures can be provided by multiple parties (similar to a joint account) or the same party signing from multiple devices, serving as a security measure. While multisig may involve added complexity for frequent transactions, it is a proven method to secure your crypto wallet. To compromise your funds, a malicious actor would need access to multiple devices.

Beware of Scams and Phishing Attempts

While hacks do occur, many common scams involve phishing attempts, where unsuspecting crypto users inadvertently grant crypto currency wallet access to untrustworthy sources. As a general rule, never sign into any crypto-related account after following a link from a source you cannot verify as entirely legitimate. This includes emails, Twitter threads, airdrops, Reddit messages, or text messages. Legitimate non-custodial wallet providers or exchanges, including Liminal, will NEVER request your recovery phrase, private keys, or encrypted password.

Conclusion

In summary, the essentiality of a cryptocurrency wallet cannot be overstated. The seamless storage, transfer, and exchange of digital currencies have become possible through contemporary solutions. While it’s feasible to create a cryptocurrency wallet independently, there are numerous websites offering professional services if you require assistance.

Are crypto wallets indispensable? Undoubtedly, they are. Without your private key and an interface capable of connecting to a blockchain, accessing your cryptocurrency becomes impossible. It’s imperative to remember the critical importance of securely storing your keys of your crypto wallet hardware platform because losing them, along with your recovery seed, means the permanent loss of your funds.

 

FAQ

Do you need a wallet to own crypto?

The fundamental advantage of all types of crypto wallet is that they empower both individuals and institutions to possess and engage with crypto assets, facilitating their participation in the Web 3.0 economy. In simple terms, crypto wallet India are the essential tools that allow direct ownership and control of crypto assets.

Are Crypto Wallets Free?

There are no associated costs when using a wallet solely for the purpose of storing bitcoin or other digital assets.

What is the safest crypto wallet?

Any custodial crypto wallet India is ideal for beginners in the world of crypto due to its user-friendly interface and robust security measures. Liminal Wallet is especially well-suited for enterprises who may have limited prior experience with cryptocurrencies and require the highest degree of security.

Is trust wallet safe in India?

Trust Wallet is a fully decentralized, non-custodial wallet, which signifies that you have total control over your cryptocurrencies, along with the sole responsibility for their security. Your cryptocurrency balances are securely encrypted within a “12-Word” Recovery Phrase.

How to Secure Your Crypto Wallet?

There are various ways you can secure your crypto wallet infrastructure: ensure platform security, employ a robust password, safeguard private keys with a hardware wallet, activate two-factor authentication, employ multiple crypto wallets, never share private keys, create backups for your digital wallet and safeguard your recovery phrase.

How Do I Send and Receive Cryptocurrency with a Wallet?

To send and receive cryptocurrency, you just need your public address. Presently, anyone possessing your public address has the capability to send you cryptocurrency, and likewise, you can use the same public address to send cryptocurrency to another party. Occasionally, a sender might provide you with the transaction ID as a gesture of goodwill. This enables you to track the transaction by using a block explorer.

More on Crypto

The evident rise of digital asset adoption is directly proportional to the rise of institutional participation, aiding and abetting the cause of making them easily accessible and safe to operate, following the standard norms of compliance. 

With the pace at which institutions are throwing liquidity in the market, amping up the count for daily transactions made, the need for building user-compatible applications, stringent monitoring engines, and fully customized workflow processes to detect anomalies becomes inevitable for the digital assets market. 

Currently, most institutions managing their wallets on either a self-custody infrastructure or integrated with a qualified digital asset custodian manually drive transaction monitoring, leading to bottlenecks and missed opportunities in detecting risks. 

This problem arises primarily for such institutions’ security and compliance teams, whether they should run behind increased security or strive for efficiency. 

Enter Liminal Firewall–a dynamic, policy-based solution designed to secure and automate digital asset transactions by monitoring them for risk and compliance checks for your custody account. 

Aimed at solving complexities involved in institutional wallets and automating the process of checking transactions for risk and compliance based checks. 

Understanding risks in institutional transactions

For institutions, the risk profiles for each transaction are different; that needs not a standard rule of checks to identify and eliminate them, but a more customized approach.  

The spectrum of vulnerabilities in digital asset transactions is vast. It includes anomalies in transactions that may signal market manipulation, irregularities in compliance checks that could expose institutions to risk, and even the potential for fraudulent actors to divert funds to illicit addresses. Tackling these challenges requires a comprehensive and strategic approach.

Risk assessment doesn’t stop at secure transactions. As operations expand, automation becomes crucial. It streamlines workflows, identifies potential security and compliance issues, and facilitates efficient monitoring, ultimately leading to a more robust risk management system.

But, building a middleware solution is just as hard as building a completely secure network for institutional wallets. 

Liminal Firewall Engine

Securing Transactions Dynamically

Liminal’s Firewall introduces dynamic policy control to your organization’s transactions. By screening them against multiple parameters, it ensures that every transaction, whether incoming or outgoing, meets the highest standards of security and compliance.

The Intuitive Rule Engine

Using Liminal’s intuitive rule engine, craft policies that align with your business risk profile. These fully customized, rule-based policies track and approve transactions, pre-screening them for security, compliance, and anomaly threats before reaching the signer.

Ensuring Travel Rule and KYT Compliance

Leverage Liminal’s built-in integration with compliance providers like Notabene and TRM Labs. This integration facilitates seamless adherence to travel rules and Know Your Transaction (KYT) compliance, automating your entire compliance operation according to jurisdictional requirements.

Customizing Firewall Policies for Your Needs

Customise firewall policies to meet your specific needs, regardless of the transaction type or scale. Explore key policies:

  1. Transfer and Limit Policy:
  • Define transfer and withdrawal limits: Set maximum amounts for individual transfers and withdrawals based on asset type, user roles, or risk profiles. This prevents unauthorized large-scale movements and helps manage operational risks.
  • Schedule transfers and withdrawals: Allow predefined transfers to occur automatically at specific times, simplifying recurring payments or investments.
  • Multi-approval workflows: Implement multi-signature authorization for exceeding specific limits, adding an extra layer of security to prevent unauthorized transactions.
  • Whitelisting trusted recipients: Limit transfers to pre-approved addresses, enhancing security and reducing the risk of accidental or fraudulent transactions.
  1. Travel Rule Policy:
  • Automatic data collection: Seamlessly collect required transaction details (sender, recipient, amount, timestamp) for transfers exceeding designated thresholds.
  • Secure data sharing: Integrate with Travel-Rule compliant platforms to securely share data with other VASPs (Virtual Asset Service Providers) as mandated by regulations.
  • Configurable thresholds: Set different thresholds for different jurisdictions or asset types, ensuring compliance and optimizing data management.
  • Auditing and reporting: Generate comprehensive reports on Travel Rule compliance and data sharing activities, facilitating regulatory audits and internal monitoring.
  1. Transaction Risk Policy:
  • Dynamic risk scoring: Apply risk scores to each transaction based on factors like transaction size, destination address, sender’s risk profile, and historical activity.
  • Real-time risk assessment: Implement real-time transaction monitoring to identify and flag suspicious activities based on defined risk parameters.
  • Customizable risk factors: Tailor risk parameters to your specific requirements and risk tolerance, ensuring a balanced security and operational efficiency approach.
  • Automated alerts and notifications: Receive immediate alerts about high-risk transactions, allowing for swift intervention and investigation if necessary.
  1. Transaction Anomaly Policy:
  • Advanced anomaly detection: Leverage machine learning algorithms to identify unusual transaction patterns deviating from historical baselines, potentially indicating fraudulent activity.
  • Customizable anomaly rules: Define specific rules for detecting anomalies based on factors like transaction size, frequency, location, or time of day.
  • Granular alert levels: Set different alert levels based on the severity of the detected anomaly, enabling prioritized investigation and response.
  • Integration with external services: Integrate with threat intelligence platforms to leverage additional data and insights for enhanced anomaly detection.

How Liminal Firewall works?

Imagine a seamless flow that empowers security and compliance teams. Liminal Firewall sits at the critical juncture, monitoring all the inbound and outbound transactions to check if they come under the risk parameter or execute if they pass the parameter. 

  • Policy Setup: Tailored, custom policies are established to counter key threats.
  • Automatic Enforcement: The policies are enforced automatically, eliminating the margin for manual errors.
  • Integration: Liminal Firewall integrates compliance and risk-checking mechanisms.
  • Initiation: Transaction starts within the institutional workflow.
  • Liminal Firewall Analysis: Real-time analysis of transaction details against predefined policies.
  • Policy Enforcement: Automatic application of tailored policies to mitigate risks.
  • Decision Categorization: Transaction goes through three categories of approve, decline, and review requested  
  • Signing: If the transaction gets approved for all parameters, it goes to the signing phase

How Liminal Firewall Works

Integration with Notabene & TRM Labs for compliance checking

From compliance giants to technology pioneers, Liminal Firewall unites the best minds in the industry. This collaborative spirit fuels our commitment to your digital asset security. 

  • Travel Rule by Notabene: Strengthening cross-border transactions.
  • KYC/AML by TRM Labs: Elevating identity verification and anti-money laundering measures.

Reinforce Your Security and Compliance

The surge in digital asset adoption has propelled institutional involvement, emphasizing the necessity for accessible and secure operations aligned with compliance standards. As transaction volumes escalate, the demand for better automation tools to track and mitigate transactional risks become imperative. 

Building a secure institutional wallet and digital asset custody infrastructure at Liminal, configured with an advanced automation engine, our Firewall engine is another step in the process of fast-pacing the everyday operational tasks for security and compliance teams. 

Understanding the multifaceted risks associated with institutional transactions underscores the importance of customized risk assessment and management approaches. Liminal Firewall’s intuitive rule engine and comprehensive policies empower organizations to fortify transaction security, ensure compliance with regulations such as the Travel Rule and KYC/AML, and mitigate various threats effectively.

February 29, 2024

The digital asset industry is more popular than ever, but it still has a lot of gas in the tank. Its current prevalence makes it accepted beyond the niche subsection of retail investors and cryptographic enthusiasts. Financial institutions are also dipping their feet into the digital asset waters, trying to capitalize on the ingenuity the assets bring to finance.

With the recent listing of Bitcoin ETFs by mammoth financial houses, the scope of investing in digital assets for institutional investors has opened up for the better. 

So, what’s changed the game for institutions? Previously, many were hesitant to jump into the digital asset world due to concerns about managing private keys securely, finding reliable custodians, and ensuring smooth transaction processing. 

Digital Assets are catching the attention of all kinds of institutional houses

With the true potential of this asset class far from reached, many investors are flocking to get some, or lots, knowing how their values can be appreciated enormously in the times to come. Assets like Bitcoin constantly show how they can multiply investments severalfold when timed correctly.

Beyond that, digital assets have proved to be great stores of value over longer durations, helping beat the corrosive effects of inflation on fiat currency. Worried about the short-term volatility of these assets, most institutional houses prefer to hold on to them for extended periods.

Family Offices Find Themselves Growing Closer to Digital Assets. 

And that has positioned family offices perfectly to jump into the digital asset landscape. Single- and multi-family offices working to preserve and grow the wealth of affluent, high-net-worth families have begun making digital assets a significant part of their overall investment portfolios, looking to tap into the burgeoning potential of blue-chip tokens and altcoins.  

Blockchain and Web3 implementations depict their ability to transform the tech and finance industries over the coming decades. Logically, family offices are turning to digital assets at the center of the transformation to set future generations up with this lucrative innovation. While these investment strategies look to become generational, family offices must make several considerations, including educating themselves about the asset class and implementing effective risk management strategies.

Choosing the ideal custodian is imperative for Family Offices

A stop-stop solution for Family Offices to maneuver their way into simplified digital asset investing and management is with digital asset custodians

Handling millions or billions of dollars in assets is no sweat for experienced custodians. They have an arsenal of solutions from wallet options like hot and cold wallets, Multi-Sig and MPC configurations compliance integrations, regulatory licenses, institutional-grade custody structures, succession planning tools, and more. But choosing the right one for your specific situation is crucial.

Family offices are best suited to choosing the services of third-party custodians for managing the digital assets in their portfolios. Self-storage solutions come with a steep learning curve and, more consequentially, the possibilities of irrecoverable asset loss if the private keys securing the assets are mishandled or lost. There is no recourse from that, possibly jeopardizing vast amounts of value.

So, relying on reputed custodians specializing in managing digital assets for clients interacting with massive volumes is the best bet for family offices. Their convenience and security make them the pragmatic option for anyone beyond the average retail digital asset investor who deals with less significant values.

What to Look for When Choosing a Custodian

While several custodians operate in the digital asset landscape, family offices must choose the right one for various reasons. Let’s examine what they must focus on and how it can make their interactions with the asset class seamless.

Secure Infrastructure

Dealing with digital assets revolves around secure infrastructure, especially when trusting third parties to manage them. After all, the amount of security breaches around private key handling leads to losses in the billions in the industry every year. Custodians possessing secure infrastructure and integrating best practices to store private keys and transfer data regarding user accounts are the ones to look for.

Identifying such custodians requires checking if they hold cybersecurity certifications, including SOC2 (Systems and Organizations Control 2) and CCSS (CryptoCurrency Security Certification) certificates, which they obtain upon intense scrutiny and audits by the issuing agencies. Simultaneously, custodians engaging in continuous bug bounties and penetration testing stay safe from emerging cybersecurity risks.

Insurance

One thing is sure in the digital asset realm – anyone can be a victim of exploits and hacks despite employing all kinds of cybersecurity protection. Cybercriminals can stay one step ahead of all preventive measures, waiting for the right time to attack. And that can lead to the theft of millions of dollars worth of assets from custodian platforms.

Insurance is the recourse for such inevitable situations, ensuring custodian clients regain lost value. It also helps clients access their value if custodians misuse the funds under management and indulge in corrupt, self-serving practices. Think of the FTX catastrophe that caused losses of user values amounting to multiple billions.

Moreover, insurance providers are very strict about the platforms they insure, doing thorough due diligence before taking custodians on board. So, insured platforms are more trustworthy than those that are not.

Regulation-Oriented

Opting for custodians that focus on regulations is a must. Several jurisdictions have rolled out their digital asset regulations, with many more in the process of doing the same. Those in regulated jurisdictions must possess licenses from regulators overseeing their national crypto ecosystems. Others in countries yet to release relevant frameworks are still answerable to financial regulators.

Ergo, choosing licensed custodians, or those following digital asset and other financial regulations in areas without specific regulations, can save family offices many headaches stemming from non-compliance. They often manifest as having the assets entrusted to the custodians frozen or seized by authorities.

Good Track Record

Family offices must stick to well-established custodians favored by institutions and enterprises in the digital asset landscape. Looking for those operating in the industry with extensive and familiar clientele for considerable periods offers the social assurance that family offices need.

Such custodians have earned their reputations by servicing their clients aptly and focusing on their specific needs, making them better options to manage crypto funds. However, that is not to say that family offices should not consider newer custodian solutions.

Looking for ones that follow all best practices, offer avant-garde features, and work towards building trust in the ecosystem can be highly beneficial. Liminal is a custodian making strides in the digital asset management vertical, providing feature-packed solutions with bank-grade security to family offices. It has also received licenses to operate in multiple jurisdictions thanks to its emphasis on a regulation-first approach.

Comprehensive Reach

The digital asset landscape is evolving rapidly, with new tokens that power highly innovative use cases emerging constantly. Simultaneously, several dApps, including DeFi protocols and DAOs, are scattered across various blockchains, proven to offer high-level yields and profit-generation measures.

Engaging with custodians supporting multichain capabilities and allowing family offices to interact with various digital assets and protocols from various chains is necessary. Moreover, they must offer convenient and intuitive workflows on their platforms for their clients to buy, trade, sell, and utilize digital assets and Web3 applications.

Sensible Pricing

A good custody solution does not equate to being expensive. Several custodians offer economical pricing tailored to the needs and usage of family offices rather than rigid, one-size-fits-all plans. Delegating the custodianship of digital assets to such solutions can keep the billables inexpensive while still providing access to a broad range of features and high-quality service.

Conclusion

Digital assets are bleeding into the portfolios of family offices thanks to their capacity to preserve value, build wealth, and complement traditional investment vehicles as an emerging, speculative asset class. While family offices are accepting it wholeheartedly and geared towards indulging in risky assets, top digital assets’ value retention and inflation-beating capabilities set the asset class up for increased adoption.

Of course, dealing with these assets at any point in time requires family offices to be equipped appropriately. It includes choosing the proper digital asset custodian. Partnering with the right one can make all the difference while treading this novel landscape, allowing family offices to hold and generate value from all facets safely.

February 29, 2024

Digital Asset markets have taken a giant leap ever since their categorization from purely being a volatile alternate investment asset to now being a robust and regulated asset class. 

The journey of digital assets, most significantly that of blue-chip tokens like Bitcoin and Ethereum, has been nothing short of a protagonist in the fight against traditional financial systems, investment avenues, and age-old yield mechanisms. 

However, it was only after the introduction of regulation for these digital assets that they garnered huge institutional interest, pushing the scale of adoption and inviting the likes of family offices to partake in the “coming of age” story of investing in digital assets. 

In the underlying characterization of digital assets as the next best portfolio addition for institutional investors, with a significant boost kicking in after the launch of Bitcoin ETFs(with Ethereum ETFs also on their way), there are still reservations as to how to go about tackling the security, custody, and management challenges that come with them. 

To discuss how current market conditions are driving family offices to embrace portfolio diversification strategies that include allocating funds to digital assets, we dive deep into the intricacies of digital asset custody

Challenges In Secure Digital Asset Investing For Family Offices 

Family offices, traditionally known for their conservative investing approach, sit in the middle of the institutional investors’ branch, bringing untapped liquidity into the market. Conventionally, family offices used to rely only on safer investment bets to accrue value for their investments, but now they are increasingly dipping their toes into the dynamic world of digital assets. 

Despite the potential for high returns, family offices have historically faced significant challenges when considering digital assets as an investment class. Factors such as market volatility, regulatory uncertainty, and the need for established custody solutions have deterred many from fully embracing digital assets.

Talking about the key hurdles family offices face in navigating this exciting but complex landscape, here are some top-of-the-line challenges for them:

  1. Security Concerns: The nascent nature of digital assets presents unique security risks. Hacking, scams, and volatile markets can threaten portfolio stability. Family offices need robust custody solutions, advanced cybersecurity measures, and comprehensive risk management strategies to mitigate these threats.
  2. Regulatory Uncertainty: The regulatory landscape surrounding digital assets is still evolving, creating uncertainty and compliance hurdles. Family offices must stay updated on changing regulations and navigate complex compliance requirements across jurisdictions.
  3. Limited Expertise: Building internal expertise in digital assets can be time-consuming and expensive. Family offices often need more in-house knowledge and resources to properly evaluate, manage, and secure their digital asset investments.
  4. Lack of Infrastructure: Integrating digital assets into existing portfolio management systems can take time and effort. Family offices need secure and reliable infrastructure to seamlessly store, manage, track, and report on their digital asset holdings.
  5. Complex Valuation: Accurately valuing digital assets can be difficult due to their volatility and lack of standardized methodologies. Family offices need robust valuation frameworks and access to reliable market data to make informed investment decisions.

Enabling Family Offices to overcome challenges in digital asset custody

The promise of digital assets is undeniable, yet the hurdles for family offices can seem daunting. 

Overcoming the challenges mentioned above and finding the best probable solutions for them becomes a hardcore reality that must be dealt with utmost precision. 

At Liminal, we work extensively with institutions looking to go one step beyond simply investing in digital assets and look to operate them securely under all circumstances. The same logic applies to family offices as well. 

In our pursuit of building such a robust infrastructure solution, tailored to address the challenges faced by family offices fully and to empower them in their journey to moving to a new asset class for investment, we have created a comprehensive custody solution, integrated best-in-class security protocols and provide real-time monitoring and risk management services to proactively identify and mitigate potential threats, giving family offices peace of mind knowing their assets are secure.

  1. Security Concerns:

Fortress-grade custody: We leverage multi-sig and MPC wallets, leading asset-to-insurance ratios, and bank-grade security protocols to ensure the safety of your assets. Our CCSS Level-3 certification and FIPS-compliant hardware devices go the extra mile, minimizing security risks and providing unmatched peace of mind.

Advanced Cybersecurity Measures: Our vigilant team constantly employs 24/7 SOC monitoring, strict access controls, and penetration testing to identify and mitigate potential threats.

Comprehensive Risk Management: Our experts help you create and implement tailored risk management strategies, considering internal vulnerabilities, market fluctuations, and evolving threats.

  1. Regulatory Uncertainty:

Staying Ahead of the Curve: We have a dedicated team of compliance experts who stay abreast of evolving regulations worldwide. We integrate crucial compliance monitoring in our solutions such as KYC/KYB, AML, and Travel Rule checks, to help navigate complexities across jurisdictions and proactively adapt our services to ensure your portfolio remains compliant.

Streamlined Reporting: Our platform generates comprehensive compliance reports automatically, saving you time and resources while ensuring transparency and regulatory adherence.

Regulatory Partnerships: We actively engage with regulatory bodies and industry leaders 

to become accredited custodians. Currently, we hold a TCSP license in Hong Kong and have also received an IPA from ADGM for an FSP license for our Abu Dhabi entity. 

  1. Limited Expertise:

Your Digital Asset Knowledge Hub: Our team of seasoned custody, compliance, wallet, and security professionals offers expert guidance on evaluating, managing, and securing your digital asset investments. We share industry insights, educational resources, and ongoing support to enhance your knowledge base.

Dedicated Account Management: A dedicated account manager serves as your point of contact, providing personalized guidance and support tailored to your specific needs and goals.

Extensive Resource Library: Access easy onboarding docs, a curated developer section, seamless user-guiding workflow, and trending topic discussions through webinars, research whitepapers, and market reports to build your understanding of digital assets and make informed investment decisions.

  1. Lack of Infrastructure:

Seamless Integration: Our API library, Liminal Express, seamlessly integrates with your existing portfolio management systems, creating a smooth and efficient workflow for managing your digital assets.

Secure Storage and Management: We provide institutional-grade hot and cold wallets for self and managed custody infrastructure, eliminating the need to build or manage complex systems.

Automated Workflows: Streamline recurring tasks and automate key processes with our automation engine, with powerful functionalities like smart refill wallet, smart consolidation, and auto-sweep, enhancing efficiency and reducing operational burdens.

  1. Complex Valuation:

Reliable Data and Valuation Tools: We offer access to trusted market data providers and valuation tools tailored for digital assets, enabling you to make informed investment decisions based on accurate assessments.

Insurance-as-a-Service: We have collaborated with Costero brokers to provide the best possible insurance to our clients that covers their entire portfolio at the best market price. 

Asset segregation and transparency: We deploy segregated accounts, succession planning, and no rehypothecation of assets to allow family offices to maximize transparency and access. 

Embracing the Future Of Family Office Investing 

The future of wealth management includes digital assets. Family offices are actively exploring this burgeoning space, recognizing the potential for diversification and growth. Liminal Custody stands as your trusted partner in this journey. As a regulated custodian, we offer best-in-class security, industry-leading compliance solutions, and a dedicated team of experts, empowering you to invest in digital assets confidently.

Let Liminal Custody guide you through the process, making the path towards secure and compliant digital asset investment smooth and efficient. Contact us today and explore the new frontier of wealth management

Remember, while the potential is promising, navigating the digital asset landscape requires careful planning and collaboration with trusted partners. Liminal Custody is here to equip you with the knowledge and resources to succeed.

February 23, 2024

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