Custody Solution: Build or Buy?

Key Takeaways:

  • In-house development is more expensive than using a third-party custody solution
  • Third-party technology providers help jumpstart your digital asset custody business
  • Scaling your custody business is easier with a third-party provider
  • Third-party custody solutions help custodians maximize security

Market leaders such as Tesla or AT&T are starting to diversify their investment portfolios with Bitcoin rapidly, and many of them are looking for a custodian to take care of their digital assets. There are many great reasons why these companies don’t go out of their way to build a custody solution for themselves but instead opt to embrace established and reputable third-party solutions.

With over $1.52 trillion on the crypto market (Bitcoin accounting for roughly 60% of the total), it’s becoming impossible for traditional asset custodians to ignore this market. With increased pressure from customers and potentially losing them to the competition, custodians may start to believe it’s necessary to build their solution.

However, we strongly advise against that move. There are many reasons why, but at the core of the issue, building a secure custody solution is financially unsustainable unless you are using a third-party technology provider.

The alternative to building a custody solution is outsourcing it to a qualified third-party provider, one that understands the needs and challenges of digital asset custodians. One that has invested time and finances not only in developing a great solution but testing its integrity day after day.

A partner that has been in the industry for long enough to acquire all of the necessary certifications, perform extensive pen-tests, and established a highly effective security team is already waiting for you with a ready-to-go custody solution.

If you are still not convinced that purchasing a custody solution is better than building one, let’s dive deeper into the four main reasons you should reconsider, capital expenses, time costs, scalability, and security.

1. In-house development is more expensive than using a third-party custody solution

Developing a secure custody solution requires extensive specialized labor from blockchain developers to cybersecurity experts and pen testers. Let’s have a look at some of the people-related costs you would face.

According to Blockchain Council, an average blockchain developer salary is $127,000 per year. One cybersecurity expert will set you back anywhere between $90,000 and $160,000 per year. Lastly, a pen tester will cost about $116,323 per year, or between $60 and $120 per hour if you decide to hire a freelancer.

The most optimistic scenario is that building a custody solution in-house will start at ~$330,000 per year for these critical positions. Consider any additional requirements, skill gaps, and other certifications necessary, and it should become clear that third-party providers are a much better option.

Third-party technology providers enable custodians to leverage years of security experimentation and experience, a sophisticated team of security experts, all for a fraction of the cost it would take any organization to reliably develop a secure custody solution in-house.

2. Third-party technology providers help jumpstart your digital asset custody business

Your organization’s time is valuable, and purchasing a digital asset custody solution from a third-party technology provider can help save years’ worth of time. Instead of spending time on research, development, and pen testing, your organization will have more time for its clients with the help of a third-party custody solution.

Regardless of the provider you choose, implementation and integration of a ready-to-go custody solution will not take more than a few short weeks, after which you will be able to rapidly expand your custody services to include digital assets such as Bitcoin, Ethereum, and eventually even CBDCs.

Compared to spending multiple years developing and testing your solution, it is easy to see how a partnership with a third-party technology provider will save your organization’s time.

3. Scaling your custody business is simpler with a third-party provider

Digital asset custody solutions are designed for institutions with flexibility in mind. We understand that your business needs will grow and change over time. Most third-party providers can provide you with more resources through a simple plan upgrade.

Eventually, your custody needs may end up outgrowing the third-party solution’s capabilities. In this case, most solutions can adapt and be used as a foundation for additional features.

Leveraging a secure and feature-rich API framework enables your organization to retain employees’ skills and familiarity using third-party software. You only need to build the additional features you need to grow your business, and everything else stays the same.

4. Third-party custody solutions help custodians maximize security

Reputable third-party technology providers have an experienced security team available for your organization at any time. They help you establish clear-cut governance rules that help your custody business remain resilient to external and internal threats.

According to CipherTrace’s Cryptocurrency Crime and Anti-Money Laundering Report, a total of $1.9 billion in digital assets was lost to crypto thefts, hacks, and frauds in 2020.

This is yet another risk that is mitigated by partnering with a third-party technology provider who has the tools and experience to establish effective governance rules that help your organization remain secure.

Many of these incidents involved malicious individuals working from the inside of an organization to commit crimes. Effective governance rules help prevent exposure from insider threats by establishing concrete procedures that define the prerequisites necessary to access the organization’s or the client’s digital assets.

Ledger Vault: the perfect solution for Digital Asset Custodians

Ledger Vault is an industry-leading digital asset management platform that enables you to securely operate and manage multiple accounts for a wide range of popular digital assets.

It allows you to apply a strong governance framework to your outgoing transactions while ensuring you own your assets by remaining independent from third parties.

At Ledger Enterprise Solutions, we want to empower individuals and organizations with state-of-the-art security that is easy-to-use solutions to manage their digital assets. This new industry brings a variety of challenges for custodians in terms of security, regulation, and accessibility.

Founded in 2021, Ledger Enterprise Solutions is a division of Ledger, the global leader in security and infrastructure solutions for safeguarding critical digital assets. The mission of Ledger Enterprise Solutions is to enable the digital assets industry to become a multi-trillion dollar industry globally. Ledger Enterprise Solutions provides enterprise-grade security technology solutions and digital asset custody services for custodians, exchanges, banks, and traditional financial institutions.

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