Bakkt Bitcoin warehouse opens its doors to all customers
Impeccable security is one of the most important prerequisites for institutional cryptocurrency adoption.
Bakkt Warehouse is now open for business, with the green light from the New York Department of Financial Services (NYDFS).
Previously Bakkt Warehouse was only available to Bakkt Bitcoin futures trading customers, but now it's open to all institutions. Its first customers include Pantera, Galaxy Digital and Tagomi.
"A critical link — perhaps the critical link — in the institutional adoption of bitcoin is custody. When investors have ready access to regulated custodians whose security and processes they trust, the full potential of this emerging asset class and technology can flourish," said Bakkt COO Adam White in a blog post announcing the full launch of Bakkt institutional custody.
A bit grandiose? Perhaps not.
Cryptocurrency is the only example of a system where you can have a theoretically unlimited value of intangible bearer instruments all in one place. You can't secure it the same way you'd secure intangible but centrally-controlled assets such as stocks, or the same way you'd secure tangible bearer instruments like gold or a mountain of cash.
Security-wise, it's almost like the worst of both worlds. This makes cryptocurrency cybersecurity a unique area. However, a seemingly endless series of exchange hacks, which have even struck leaders in the crypto space, has only cemented the idea that cryptocurrency cybersecurity is still too much art and not enough science.
But perfect security is a non-negotiable prerequisite for cryptocurrencies to hit the big time. Until you can have absolute confidence in a custody service, the amount of money you can safely keep in one place with crypto is severely limited. The possibility of instantly losing everything to a thief, with no recourse, is a risk that no institution can plan for.
As Nasdaq CEO Adena Friedman said, the two main obstacles preventing crypto-enthusiastic financial institutions from entering the space are cybersecurity and regulatory hurdles.
The full launch of Bakkt Warehouse, with NYDFS approval, is an example of how these obstacles are being rolled back.
On the other hand
On the other hand, Bakkt is far from the only institutional-grade cryptocurrency custody service. Other chief competitors include Coinbase Custody, Fidelity Digital Assets and BitGo, and all of them are eager to tout their own security credentials.
Bakkt Warehouse uses biometrically controlled bank-grade vaults and enterprise-grade hardware security modules to protect funds, with geographically distributed primary and secondary facilities providing redundant systems and disaster recovery. Facilities are equipped with 24/7 video monitoring, armed guards, security operations and incident response teams, while all key signing operations are geographically distributed.
Segregated duties, protected identities and independent reporting structures are used to reduce the risk of inside jobs and collusion, and Bakkt's $125 million insurance policy is underwritten by a "leading global syndicate of insurers".
It remains to be seen how well Bakkt Warehouse will stand out in an increasingly crowded crypto custody market, but it's safe to say more variety in the space should help it evolve and see the best features rise to the top, further honing the all-important security prerequisite of institutional cryptocurrency adoption.
One upshot of cryptocurrencies, and the way they're simultaneously valuable, intangible and bearer instruments, is that they create a new reason for these kinds of Hollywood spy thriller-esque bunkers to exist.
Maybe the next big cryptocurrency milestone can be a Bitcoin heist film.
Disclosure: The author holds BNB, BTC at the time of writing.
- SEC crackdown on Binance, Kraken – What it means for Aussie investors
- Sam Bankman-Fried found guilty – what it means for Australian FTX victims
- Bitcoin’s price soars over 10% on ETF rumours – here’s why
- New regulations for Aussie crypto exchanges: What it means for investors
- Sam Bankman-Fried’s FTX trial starts tomorrow – what it means for FTX customers