There are tradeoffs between centralization and convenience in cryptocurrency trading. BitGo has partnered with Genesis Global Trading Inc. to introduce a new method for exchanging funds offline that could offer greater flexibility and security, but it may come at the cost of custody.
In partnership with @GenesisTrading, “BitGo Inc.’s customers will be able to buy or sell Bitcoin, Ether and other digital assets without the coins ever leaving cold storage.” @mattleising via @technology https://t.co/bXsqCSysfl #custody #digitalcurrencies
— BitGo (@BitGo) January 16, 2019
Mainstream investors have shied away from cryptocurrency investment. Not only because of the volatility, but because of rampant hacking and theft—as demonstrated by the recent Cryptopia hack and the infamous Mt. Gox heist of 2014.
BitGo wants to provide a way to mitigate some of these risks. The service will soon provide the ability to buy and sell bitcoin, ether, and other coins (listed below) without the need to remove them from cold storage. This has the potential to provide peace of mind and could be one factor that institutional investors are looking for.
— BitGo (@BitGo) January 16, 2019
BitGo is a blockchain security company founded in 2013. The company claims to be a market leader in institutional and cryptocurrency financial services, touting the slogan “modern custody for modern assets.”
According to the company’s website, BitGo processes “15% of all global Bitcoin transactions, and $15 billion per month across all cryptocurrencies [supporting] over 100 coins and tokens, and has over $2 billion in assets in wallet.”
BitGo is partnering with Genesis Global Trading Inc., an over-the-counter (OTC) digital currency trading company serving institutional clients.
Examining the Partnership
According to the company’s blog, BitGo announced its partnership with Genesis, claiming that it demonstrates a “commitment to developing institutional-grade cryptocurrency infrastructure” and will provide a “one-of-a-kind, full-scale solution” for its clients:
“BitGo has developed a seamless integration to easily connect trading platforms with our industry-leading cold storage custody solution. Through this platform, Genesis [will] provide BitGo Trust clients with a deep liquidity network and access to competitive pricing and same day settlement.”
Accordingly, BitGo’s clients will have access to real-time pricing for buy and sell orders without the need to manage keys. Cryptocurrencies available through Genesis Global Trading include Bitcoin Cash (BCH), Ethereum Classic (ETC), Litecoin (LTC), XRP (XRP), and Zcash (ZEC).
Storage and Compliance
Cold storage is the process of storing cryptocurrency in a medium that’s disconnected from the internet. Such separation means fewer points of contact with the outside world, and consequently, fewer opportunities for hackers to steal those funds. In an article on Bloomberg, BitGo’s co-founder and CEO Mike Belshe had this to say about the storage method:
“Being able to buy or sell in offline-mode means coins aren’t sent to exchanges, cutting the risk of theft [and] human error.”
In addition to alleged liquidity and security, the newfound partnership also offers compliance. Genesis is a FINRA and SEC regulated company—and for many institutional investors compliance is a hurdle to speculating on cryptocurrency, and is especially so considering that the SEC has suggested that trading cryptocurrency—and any associated criminality—is not beyond the agency’s purview.
Institutional investors who may be hesitant to personally manage wallets and deal with exchanges (like Coinbase) will be relieved to transact in a “familiar way” through Genesis. If an investor, for instance, wants to buy or sell bitcoin from a BitGo wallet, then Genesis will act on behalf of the client—much the same way that a stock exchange does.
BitGo hopes that this familiarity, coupled with the security of cold storage, are the incentives needed to encourage institutional investors to commit to cryptocurrency.
“Partnering with Genesis underscores our commitment to developing institutional-grade cryptocurrency infrastructure and represents the first of many trading integration partnerships.”
In addition to a purported “seamless experience” and “smooth user interface,” there will be no fees for the service—a rare perk in an industry with relatively high fees when compared to traditional finance.
Questions Around Custody
The premise behind BitGo’s cold storage trading provides another layer of abstraction with potential for abuse. Once funds are taken offline and represented via BitGo’s databases, it becomes much more difficult, if not impossible, to trace where those funds are moving via the blockchain.
This is the antithesis to the recent “Proof of Keys” movement, an initiative by HODLers of Last Resort to encourage people to “take control of their monetary sovereignty” through regular, coordinated withdrawals of cryptocurrency to prove that the coins are accessible and not just fractional like the fiat banking system.
“Anyone who wants you not to hold your own private keys or not do your own network consensus, they’re your monetary enemy. They do not want you to be free and independent with your money.” [emphasis added]
Andreas Antonopoulos, the author of Mastering Bitcoin and vocal digital currency advocate iterated the anthem. “Not your keys, not your bitcoin,” he stated over Twitter. He also adheres to the idea of regularly withdrawing currency to a hardware wallet that the user has physical control over.
As asserted by Mayer, if people don’t hold their keys and perform their own network consensus, then “if there’s anything that history in this space has taught us, it’s that they’re going to get wrecked.”
The proof of keys movement seems to run at odds with what BitGo is trying to accomplish. With the additional layer of cold storage, it may be even harder to track and withdraw cryptocurrency funds.
That in mind, it will be interesting to see how the cryptocurrency community and institutional investors respond to the service. Do institutional traders even care? To some, perhaps it’s worth the tradeoff to delegate control over private keys to companies like BitGo and Genesis.
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