Crypto markets move at the speed of light, but many financial institutions today are still using cumbersome cold storage and hardware wallets — the most well-known digital asset security methods — to secure their coins.
However, institutions are realizing that these methods are simply too slow to be practical for day-to-day use, and that using them in 2020 risks falling behind market pace.
For financial institutions working with crypto, increasing transaction speed by adopting new storage and transfer tech will be the path toward accelerating profitability in 2020.
The correlation between speed, profit and exchanges
It’s common knowledge that the price of Bitcoin (BTC) often fluctuates rapidly. In 2011, the Mt. Gox flash-crash — one of the largest in the history of Bitcoin — led to the price of Bitcoin dropping 99.4% in a matter of minutes.
Bitcoin has had a solid 2020 so far, with price movements generally trending upward. But even during a strong growth period like the one we’re in, prices can vary enormously. In fact, on Feb. 19, Bitcoin had its fifth-largest hourly price drop ever: a drop of nearly $800 in an hour.
Currently, exchanges require prefunding of assets to receive trading credit. This process is cumbersome and requires effective risk management in terms of managing exchange liquidity. At the same time, it does not allow users to easily take advantage of market-positive opportunities across different trading venues. The process is an inefficient use of capital, requiring users to allocate on exchanges even if market forces don’t necessarily indicate they should be trading on that exchange, as a trader would never want to be out of position on an exchange.
All these operational inefficiencies are currently tolerated in order to maximize transaction speeds. In this industry, opportunities can disappear at the drop of a hat, and hedging your position for timeframes of hours can be complicated and expensive. Being able to quickly fund your account with a liquidity provider affects your top-line in a direct way.
As a result, quick transaction speeds are an untapped opportunity for organizations that want to accelerate profits this year.
In 2020, it’s all about getting the transaction speed as high as possible, which means looking into new ways of storing and moving crypto.
Scaling operations isn’t linear
So, you’re ready to focus on upping transaction speed in 2020 to maximize profits. An obvious first step toward doing so (and one that would allow a tight grip kept on asset security) is to scale operations by increasing headcount.
Related: Crypto Exchange Hacks in Review
But raw headcount alone can’t speed up operations to a level where you’re really seeing profit margins change. Ultimately, you can only move as fast as your operational processes allow you to. Whether you have one operations manager, five or 20, sluggish access to your digital assets caused by the limitations of your storage solution will get in the way of execution speed. Needless to say, scaling your operations team will also impact your bottom line.
That’s why institutions in the crypto space are looking at altering the way they do business entirely. Instead of hiring more operations managers, they’re piloting new technologies that make crypto significantly more accessible without sacrificing top-grade security.
Swifter, more secure transactions
One new technology that’s gained traction is MPC (multi-party computation) cryptography. When paired with hardware isolation (especially at the chip level), MPC private key sharding removes the possibility of a single point of compromise without jeopardizing instant access to assets.
Institutions are also starting to eliminate time-consuming test transfers entirely by joining private networks where deposit addresses have been eliminated. In these networks, whitelisting happens automatically on the backend, preventing spoofing and man-in-the-middle attacks while significantly decreasing transaction times.
Transaction speed is really the next frontier — institutions need to be focused on bringing traders closer to a single credit pool, allowing them to seize market opportunities faster. Some teams have embraced solutions like Fireblocks, Omniex and AlgoTrader to accelerate trade execution and scale operations without increasing headcount, giving them a leg up on the competition.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Michael Shaulov is the CEO and co-founder of Fireblocks. He is a serial cybersecurity entrepreneur and investor. Before founding Fireblocks, a digital asset security platform, Michael co-founded Lacoon Mobile Security, which was acquired by Check Point. Prior to his commercial endeavors, Michael pioneered the mobile security field in an elite military technological unit (8200), where he received the Israeli Presidential Excellency Honor for his contributions. He holds a BSc in Computer Sciences and Physics from Ben-Gurion University, Israel.