The digital asset market, long dominated by individual retail traders, is attracting the interest and participation of institutional investors.
To give these investors the same degree of operational confidence that they have with more traditional financial and commodity markets, Seed CX, a leading institutional digital asset exchange and settlement agent, today introduced an innovative new digital asset wallet solution featuring on-chain settlement.
Seed CX’s wallet solution aims to be more stable, more transparent and more secure than any other wallet solution. Via its settlement subsidiary, Zero Hash, each Seed CX market participant receives a unique wallet instead of having their assets carried within a single omnibus wallet, or across multiple shared wallets, which is the common approach taken by other exchanges.
This approach provides multiple benefits. First, it allows Zero Hash to synchronize its internal accounting layer with the blockchain, with deliveries and settlements being posted to the public network for immutable record-keeping. This gives participants an additional external view of all deposits, movements and withdrawals associated with their wallet and the ability to independently confirm all Zero Hash-initiated transactions.
In addition to the benefit of increased visibility, spreading digital asset holdings across multiple wallets reduces the surface area for bad actors looking to attack.
“Seed CX is purpose built to provide the security and stability institutional investors demand, and the cost-efficiency and performance that large liquidity providers require,” said Edward Woodford, co-founder and CEO of Seed CX. “On-chain settlement helps Seed CX provide trading firms with an experience that is both cost effective and high performance, while also providing the operational and financial security investors demand.”
One recent report estimates that traders lost $880 million in the last two years due to hacks and scams. Many of these occur because exchanges do not prioritize the more sophisticated (and generally more onerous and expensive) operational safeguards that Seed CX has invested in. This results in single wallets holding many participants’ assets, single-signature authentication, minimal authentication for withdrawals, and generally insufficient security protocols.
“Zero Hash has learned a great deal from the shortcomings and failures of other exchanges,” said Julie Myers-Wood, a Zero Hash public director. “Giving participants full visibility into their own unique wallets is a big part of that, but it’s not enough. Zero Hash has a wide range of operational controls designed to provide investors with a first-of-its-kind experience.”
Specifically, other ways Zero Hash seeks to provide a secure environment include:
Ongoing and dynamic creation of new wallet addresses: Every day, Zero Hash creates new wallet addresses for each participant and then does so again each time movements between wallets take place. This allows participants to easily track movements on the blockchain while keeping their activity anonymous to other participants.
Segregated wallets: Having an unlimited number of individual wallets vastly increases the difficulty of accessing all participants’ holdings through a single cyber attack.
Clear ownership of assets: With the segregation of wallets, there is a clear distinction of ownership of digital assets, for each participant, at any given time.
Restricted access to withdrawal assets: All withdrawal requests must be approved by an authorized signer of the participant. Participants may grant access to fund administrators to either initiate or approve movements, as is common practice in other asset classes.
Whitelisted addresses: Participants can only withdraw digital assets to an external wallet pre-approved by an authorized signer.
Multi-sig security: Zero Hash utilizes multi-signature wallets, which require the use of two of three independently held private keys for any transfer to take place.
“In any market, there is a risk of bad actors, and our focus is first to make it as difficult for hackers as possible, and second, to limit the potential gain for their efforts,” added Woodford. “Our hope is to make the risk reward calculation for an attack to be as unappealing as possible.”