Billions of dollars in Crypto goes Missing… How EQUOS Solves the Custody Challenge

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Since 2011, there have been dozens of exchange hackings, resulting in the equivalent of billions of US dollars worth of stolen assets[1]. In May 2019, Binance, one of the world’s largest crypto exchanges was notoriously hacked, resulting in a loss of 7,000 Bitcoin, worth in the region of $40 million at the time[2]. It was a shocking development and served as a stark reminder to both current and prospective investors that even the industry’s largest players are not impervious to masterfully orchestrated attacks.

The good news is that in the year following this attack, we have witnessed the emergence of an ecosystem of sophisticated, enterprise-grade custodial solutions. The entrance of these players represents a cataclysmic shift which is bringing institutional investors out from the sidelines and into the fray of digital asset investing.

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Custody of crypto assets is complicated. Assets are secured in wallets which are guarded by private keys. Due to their decentralization, however, the custody of private keys is far more complex compared to the safekeeping of traditional assets. Private keys are comparable to physical stock certificates or bearer shares, in that access and control of them equates to ownership of digital assets — thus options for recourse after a theft is minimal at best. This makes the guardianship and preservation of private keys paramount.

In the formative years of the digital asset landscape, private keys were left to individuals to self-store, typically on a hard or USB-drive, or were otherwise left sitting on an exchange, in an online or ‘hot’ wallet. The self-custody process could be quite challenging for those without advanced technical knowledge, and left many investors vulnerable to theft.

Hot wallets remain, however, the most popular storage solutions for retail investors in digital assets, despite prolific and well-publicized exchanges hacks. The Binance attack was purported to entail phishing (human weakness), penetration of hot wallets/user API keys (system weakness), and the infiltration of two-factor authentication protocols (implementation weakness)[3]. All these weaknesses can be addressed and minimized or nullified entirely through sound custodial infrastructure.

Emerging Solutions

The most secure form of storage is segregated cold storage, which is an offline or ‘air-gapped’ solution. Digivault, which is part of the Diginex Group and a sister company of EQUOS, uses this approach. Digivault’s completely air-gapped transaction process eliminates the need for conventional USB devices, or any other electronic device, to safeguard assets from the threat of hacks. By removing dependency on WiFi/Bluetooth/NFC capabilities, the technology reinforces security. Digivault’s deep storage cold solution is based on well-established methods using Hardware Security Modules (HSMs) to safeguard digital assets by way of securing private keys using physical objects (key cards). These are then stored inside the vaults of leading storage provider Malca-Amit. This cooperation enables Digivault to store client assets next to gold and silver in vaults that meet the highest grades of bank-entrusted vault classification and to store client assets in select locations.

Protect your Investments with EQUOS

At EQUOS, asset custody and security is of the upmost importance. We want our customers to feel safe when depositing funds on our platform. Therefore, our custody team took great pains to find an adequate solution. EQUOS is ensuring client’s assets are secure by partnering with several leading custody providers, including Digivault, coming in Q4. The first external custody provider to be onboarded is BitGo, which was chosen as it shares our values of transparency and security while fostering innovation in the digital currency space.

EQUOS’s technical operations team consistently monitors hot and cold wallets as well as forecasts market movements. Furthermore, we perform everyday end-of-day reconciliation between our technical operations portal, third party custody and the exchange. While most exchanges reconcile and conduct anti money laundering processes after they have cause for suspicion, we conduct most protocol in real time to mitigate risk. We also provide consistent market surveillance to make certain that EQUOS remains a fair and organic trading ecosystem without market manipulation.

The security of holding funds in qualified and regulated enterprise-grade custody offers comfort unrivaled by that of funds held online in an exchange. Credible custodial solutions can enhance capital efficiency for traders transacting across multiple exchanges — moving funds from one platform to another to prefund trades is clunky and arduous, and traders incur additional fees in the process, which diminishes their ability to be opportunistic in capitalizing on price momentum in the market. With integrated custody solutions, which are becoming increasingly prevalent, investors can centralize their capital securely and conveniently deploy it across a selection of exchanges, in line with trading strategies and in parallel to rising market opportunities. At EQUOS, we believe in ensuring the safekeeping of our clients’ assets to an extent that they must only ever concern themselves with the direction of the market.

[1] The Wall Street Journal, July 16, 2018, By Steven Russolillo and Eun-Young Jeong https://www.wsj.com/articles/why-cryptocurrency-exchange-hacks-keep-happening-1531656000

[2] Bloomberg, 8 May 2019, By Eric Lam, Hackers Steal $40 Million Worth of Bitcoin From Binance https://www.bloomberg.com/news/articles/2019-05-08/crypto-exchange-giant-binance-reports-a-hack-of-7-000-bitcoin

[3] Plug and Play Tech Centre, May 2019,By Paulo Shakarian. The Binance Hack: Three Lessons You Can Learn From It. https://www.plugandplaytechcenter.com/resources/binance-hack-three-lessons-you-can-learn-it/

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