Bitcoin ETFs Provide Unprecedented Security, Says 21Shares Co-founder Ophelia Snyder
Summary:
American asset managers have initiated the trading of billions in Bitcoin exchange-traded funds (ETFs), prompting concerns about the security of the underlying asset. Ophelia Snyder, the co-founder of 21Shares, provides assurances that their ETF products have multiple layers of security, unlike retail accounts on crypto exchanges. To mitigate the risk of focused attack, their assets are deposited into several unique wallets. Furthermore, the company uses multiple authorization steps and geographical diversification of vaults holding parts of the private key to ensure asset security. The first spot Bitcoin ETF was approved in the U.S. on January 10, 2024, and trading initiated the following day.
Trading of billions in spot Bitcoin (BTC) exchange-traded funds (ETF) by ten American asset managers leaves investors querying about the security of the underlying asset. Even as crypto exchanges have minimized losses to hackers in recent years, the multimillion-dollar breaches of platforms like Poloniex in 2023 remains a cautionary tale. So, with these incidences in mind, is a spot Bitcoin ETF any safer for a retail user than trading on such an exchange?
The cryptocurrency custody products used by spot Bitcoin ETF providers are not comparable to what retail customers access on crypto exchanges, noted Ophelia Snyder, the co-founder of the companies 21Shares and 21.co. She revealed that they use Coinbase as a custodian for US products, though the structure is vastly different from using it as an individual user. 21Shares, partnering with ARK Invest, is part of the team launching spot Bitcoin ETFs currently operational in the US, including the ARK Invest and 21Shares spot Bitcoin ETF (ARKB). In Europe, 21.co, and 21Shares run a host of crypto exchange-traded products, positioning them as one of the world's largest crypto ETP providers.
Retail users' assets, like Bitcoin, are often commingled in omnibus accounts on trading platforms like Coinbase, explained Snyder. ARK and 21Shares' spot Bitcoin ETFs, in contrast, use strictly segregated accounts. Each asset is deposited into a unique wallet, or in their case, several, to reduce the risk of a concentrated attack.
To further enhance security, 21Shares has diversified custodians for its European products. According to Snyder, a spot Bitcoin ETF also offers greater security from a bankruptcy perspective. If, for instance, 21Shares folds up, a trustee is in place to recover the assets directly from Coinbase. In case Coinbase goes bankrupt, those assets are secure from commingling.
21Shares also fortifies its Bitcoin ETF's security through multiple authorization stages, meaning no single person could move these assets. This level of security is reached by fracturing the private key into several parts and securing them in geographically dispersed vaults.
21Shares has been fine-tuning its implementation with custodians for half a decade. As per Snyder, Bitcoin ETF providers must store their Bitcoin offline in wallets that have never been connected to the internet, as Bitcoin is not like any other asset.
The first spot Bitcoin ETF's much-anticipated approval in the U.S. happened on January 10, 2024, with trading commencing the following day. At the time of launch, Coinbase custody was a choice for eight out of ten spot Bitcoin ETF providers. Some, like Fidelity Investments, opted for their proprietary custody solution, Fidelity Digital Asset Services. Another issuer, VanEck, chose to store its underlying BTC with Gemini, a crypto trading platform started by the Winklevoss twins, who were the first-ever proposers of a spot Bitcoin ETF to the U.S. Securities and Exchange Commission back in July 2013.
Published At
1/15/2024 5:18:22 PM
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