Cold Storage is Imperfect for Cryptocurrency – Investors not participating in Crypto-Economic Network is For WorseFebruary 13, 2019
People are widely concerned about securely amassing wealth in the cryptocurrency era. People are making use of cold storage methods, where they stash up their private keys offline. They think the lesser the accessibility, the better it would be.
To discourage hackers from being able to access their wealth, they write their passcodes on strips of paper and then keep it in “safety deposit boxes.” Another method where investors lock their keys on the computers that are disconnected from the internet in a way to stay away from hackers. However, the idea of cold storage is imperfect.
An excellent example of why cold storage is not good is the recent happening with QuadrigaCX. The flaw with cold storage is painfully apparent in the case of the Canadian Cryptocurrency.
Beginners think that freezing the assets will hinder the investors from taking advantage of the fleeting fluctuations seen in the market. The technology as well shifts from the phase of speculation to the stage of utility. Cold storage will as well restrict people participating in the crypto-economic networks. The pattern of financial incentive that is provided to improve the blockchain projects by making use of game like activities like “Proof of Stake” and the inflation pools of stellar for instance is also noteworthy.
Some investors are not actively taking up roles in these networks. Ultimately, these investors are set to lose out.
Nathan McCauley, Co-founder, and CEO of Anchor Labs stated, “Imagine holding traditional equities and not being able to capture dividends.”
Anchor Labs is currently focused on solving these problems. McCauley further stated, “The cold storage providers are effectively going to be dropping dividends on the floor.” The company has however not revealed the details about the technology. It is sufficient to state that their service makes use of smart usage of biometrics and behavioral data. Rather than restoring to cold storage, cryptocurrency can be stored by guarding it with multiple approvals and human reviews in the process.
Cold storage is not only potentially wasteful but also can have legal ramifications.
Sherwin Dowlat, a Satis Group analyst, stated that several partners in investment funds would be able to consider practicing non-participation in the different crypto-economic network. This the digital asset advisory firm states is a breach of fiduciary duty. It is considered to be an act of negligence to be leaving the money on the table in this manner.
Chirs Dixon added, “Custody is the single biggest piece of infrastructure holding back the growth of the space.”