Coinbase CEO talks about the four myths of crypto custody

Coinbase crypto exchange wallet CEO and co-founder Brian Armstrong outlines his four common misconceptions about crypto custody solutions. On February 22, Armstrong wrote in an article on Fortune’s crypto-focused segment “The Ledger.”

At one hand, a method of keeping crypto holdings and users’ private key offline to secure against theft on a remote attack is called the cold storage. On the other hand, hot storage refers to the storage on the device that is connecting to the internet.

The hot storage

On Armstrong’s argument, he firstly tackles the idea of hot storage’s necessity in providing flexible and fast features. Those are a must in executing trades. Armstrong notes that certain platforms enable users to trade over-the-counter (OTC) on a delayed settlement. In other words, funds in offline storage remain until after execution of a trade.

Reports say a joint venture recently between blockchain security BitGo and Bitcoin OTC trading, Genesis Global Trading likely enable clients to trade crypto without any withdrawals coming from the cold storage.

The PoS-based cryptocurrency

Secondly, Armstrong points on proof-of-stake (PoS)-base crypto. He notes that engaging in a PoS network and earnings on stake coins don’t necessarily mean the remaining is to store in a hot wallet.

The Tezos

Providing an example, the CEO talks about the crypto project Tezos. Tezos allows token owners to transfer their stake funds to a baker. The one who keeps small parts of the funds’ hot generating stake rewards but still customers’ funds offline will remain.

The single-key holders

Thirdly, Armstrong differentiates the relationship of single-key holders and if the storage is cold or hot. He notes that designing crypto custody solutions requires multiple keys in measuring whether stored funds are online or offline.

Lastly, Armstrong talks on the hardware security modules. He argues that they are nearing to the security of cold storage which can be beneficial to custodial architecture. Armstrong ending his article with a note saying, “With hot storage, there are a lot of details that you need to get right to keep the funds safe. Is it possible to get all those details right? Yes, and I’m comfortable using hot storage for reasonable amounts. […] Do I want to bet my entire business on all those details being right indefinitely? Probably not.”