Bakkt COO Adam White has blogged on his company’s efforts to become the go-to Bitcoin futures trading platform and “digital asset” custodian for institutions.
According to the post, Bakkt has acquired Digital Asset Custody Company (DACC) establishing a “commitment to setting a new standard for securely storing digital assets.” White writes that DACC already performs, “…native support of 13 blockchains and 100+ assets.”
Bakkt also stated it is working closely with “BNY Mellon to offer geographically-distributed storage of private keys secured by the bank.”
Bakkt was launched last summer by ICE (the Intercontinental Exchange), which also runs the New York Stock Exchange (NYSE) and several other leading exchanges.
Bakkt had hoped to have its physically-settled Bitcoin futures market up and running by early this year, but approval of its filing at the SEC has reportedly been delayed as the agency has simultaneously also rejected a spate of similar Bitcoin ETF filings.
Concern among regulators has likely only grown since news emerged in late January that Canadian crypto exchange Quadriga CX has permanently lost access to $190 million in exchange funds.
Since the invention of Bitcoin in 2009, hacks on cryptocurrency trading platforms have also been common.
According to the blogger “Neuron,” over $15 billion USD in cryptocurrencies has been stolen from independent exchanges since 2013, including Mt Gox (~$700 million USD) and Coincheck (~$534 million USD).
Stories of exchange, wallet-service and cellphone hacks, meanwhile, emerge almost daily. Not having been hacked is an increasingly important marker of prestige in an industry hoping to go mainstream.
White, a former US Air Force veteran and a former executive at crypto exchange Coinbase, says he and his team have been working to ensure extraordinary security at Bakkt:
“Having worked in the crypto space developing advanced trading and custody solutions since 2013, it’s clear to me that ironclad infrastructure and a security-first mindset are fundamental to storing digital assets.”
White, promises “advanced systems design” and “robust operational controls” at Bakkt.
The CME and Cboe have both been offering cash-settled Bitcoin futures since December 2017, but Bakkt hopes to distinguish itself as a broker of, “…a physical-delivery bitcoin future…traded on ICE Futures US (IFUS) and cleared on ICE Clear US (ICUS), a federally regulated exchange and clearinghouse regulated by the CFTC.”
Providing physically-settled Bitcoin futures means Bakkt must provide safe custody. This has proven no small matter for companies handling ephemeral commodities -cryptocurrencies- comprised of little more than code.
Once approved, White says, Bakkt systems, will provide, “…the first end-to-end regulated environment for price discovery of crypto — Bitcoin will be stored at a regulated custodian, and traded and cleared on a federally regulated exchange and clearinghouse.”
As well, “By understanding and applying the attributes that make public blockchains unique,” Bakkt hopes to “…launch products that solve real problems for real people…(and) enable faster, less costly, and more efficient payments for companies like Starbucks.”
The system Bakkt will provide for Starbucks is still in development but has so far been described as involving helping the company to accept Bitcoin payments at retail coffee shops.
Whit says Bakkt’s custodial system will involve both, “…warm (online) and cold (offline) wallet architecture to secure customer funds.”
Cold wallets at Bakkt will reportedly be, “…air-gapped…(and) insured with a $100,000,000 policy underwritten by leading global insurance carriers.”
Wallet systems will also incorporate, “multi-signature controls…multi-factor authentication, destination address whitelisting, and role-based permissions,” White writes.
“Cold wallets” are hardware devices similar to flash drives where cryptocurrency private keys may be stored offline.
Quadriga CX representatives have claimed the exchange’s founder died suddenly without giving anyone else passwords to the exchange’s offline cold wallets.
Since the Quadriga saga unfolded, regulators in Canada and Japan have stepped up their scrutiny of how exchanges are handling physical custody of cryptocurrencies.
As well, White says Bakkt will use, “bank-grade vaults and data centers that are protected with 24/7 physical security,” will incorporate, “Role-based permissions (that) strictly limit employee access,” and the same cybersecurity protocols currently in use at NYSE, “…a program that continuously adds controls to prevent the unauthorized access.”
Operational controls will also include, “anti-collusion and insider threat controls.”
