Institutionalizing the Digital Asset Industry: How to Join the Revolution

June 21, 2021 - 5 min read

The last part in our series, dedicated to digital asset institutionalization, provides a practical solution to the key challenges organizations face when entering the market. We step on years of experience helping retail and institutional clients join the digital asset industry to bring down the last barriers and empower companies to thrive on what proves to be highly fruitful soil for future business growth.

Key takeaways:

  • Inability to secure private key storage and lack of flexible governance workflows are among the critical challenges institutional investors face in their digital asset transition
  • As an industry-proven solution, Ledger Vault helps organizations overcome these hurdles and ease the adoption of digital assets in their portfolios and product offerings by taking care of their security and management
  • The technology infrastructure doesn’t sacrifice usability to ensure end-to-end security. Instead, it empowers financial institutions to have their funds readily available and highly secure at the same time

While the institutionalization of the digital asset niche is happening at an unprecedented rate, institutional investors remain somewhat concerned. The latest survey by Fidelity Digital Assets reports that 35% of them are worried about private key management and 41% about securing their digital assets.

These are all valid concerns, and institutions have the reasons to feel that way, considering that, according to CipherTrace, crypto thefts, hacks, and frauds in 2020 topped $1.9 billion.

But risks aren’t just external. Organizations are also vulnerable from the inside. Whether it is about employees using their privileges to steal funds or becoming the target in an organized attack, in the last couple of years, we have seen many situations where institutions’ security had been exploited from within.

Fortunately, these risks and concerns can be adequately addressed once institutional investors find the right technology service provider to ease their digital asset journey.

Digital asset security and management risks — the last barriers facing institutional investors

To ensure maximum security and safeguard their reputation, institutional investors should focus on streamlining two key aspects of their crypto-related operations:

Securing the private key storage

The oldest saying in the cryptocurrency world is that whoever holds the private keys controls the assets.

To secure their private keys, for years, financial organizations have been relying on hardware security modules (HSMs) — security devices that generate and protect cryptographic keys and perform cryptographic operations. There is the widespread assumption that HSMs offer the highest level of private key security.

Learn how Charles Guillemet, Ledger’s CTO, and his team of security experts uncovered 14 vulnerabilities in an HSM model and worked closely with the vendor to resolve them here.

Ensuring flexible governance and control

Guaranteeing the secure storage of private keys is just the first step. Next, organizations need to ensure that the keys are in the right hands at all times. To limit the exposure to insider threats, they should be able to design flexible governance rules and control functions.

These might include establishing concrete procedures that define the prerequisites needed to access the digital assets of the organization or its clients, the capability to tailor them according to the firm’s structure and individual needs, and the freedom to distribute the rights to manage transactions across several nodes.

Without flexible management workflows included in complex governance frameworks, organizations have their hands tied and become susceptible to both insider and external threats.

Your keys, your rules, your business — Ledger Vault for your digital asset revolution

The gradual integration of digital assets into institutional investors’ portfolios can be a seamless process if organizations are backed with institutional-grade security technology, capable of ensuring end-to-end defense without a single point of failure.

As such, Ledger Vault strikes the perfect balance between security, scalability, and accessibility. The platform enables financial institutions to safely operate and manage multiple accounts for a wide range of digital assets through a combination of hardware security modules (HSMs) and personal security devices (PSDs). All private keys are protected by multiple virtual and physical security layers with no potential weak points.

Combined with a cloud-based infrastructure for more flexible governance procedures, Ledger Vault accommodates even the most demanding business flows. The security technology’s series of independent defense mechanisms enable users to set multi-authorization, time-lock, and whitelist schemes to govern accounts in an environment, highly-protected against any kind of tampering.

Through role-based access controls that can be tailored to fit institutions of any size, Ledger Vault allows the segregation of the level of access of each node, giving organizations total control over the digital assets. That way, transactions are independently validated in a safe and secure execution framework with no vulnerabilities that external or internal agents can exploit.

To ensure your peace of mind, we go a step beyond to pool a customized crime insurance program protecting crypto-assets up to $150m against third-party theft of master seed and private keys, insider employee theft, and more.

Thanks to that, Ledger Vault brings organizations benefits on all fronts — they can take advantage of instant liquidity management while also erasing all concerns about private key storage and governance.

The future awaits. But you should not.

The analysis we made during our “institutionalization month” comes down to one thing — the sentiment is slowly but surely turning positive, technology adoption is increasing, and regulations are improving. The digital asset revolution is happening, and financial institutions will become a part of it, even if they don’t know it yet.

When that moment arrives, they will need a partner to guide them through the intricacies of the asset class, mark down the challenges, and provide a solution. Due to the fact that the way organizations handle their adoption of digital assets will have a long-lasting impact on their clients, ideally, they would seek to rely on a partner that had actively contributed to the maturation of the ecosystem over the years both within the retail and the enterprise sector.

At Ledger Enterprise Solutions, we support digital asset adoption among banks and investment firms. Through our core technology platform, Ledger Vault, advisory services, and partnerships, we help financial institutions address technology implementation, security, and governance with ease and peace of mind.