Ever since Elon Musk purchased $1.5B worth of Bitcoin for Tesla on the 15th of February, 2021, almost every single major corporation started thinking about a way to buy, hold, and even accept cryptocurrencies from their customers.
And as public sentiment for Bitcoin & other coins is growing, hedge funds are also in a position where they have to figure out a way to implement cryptocurrencies in their portfolios in a safe & secure way.
To achieve this, most funds make use of managed financial products and don’t hold the assets themselves. But they don't have to necessarily do this. Self-custody is easy to do by utilizing smart contracts.
So if a company wants to offer their customers simple investment products as cryptocurrencies, the invested funds have to be converted into crypto somehow via a third-party, which can lead to several problems.
A better solution is to hold these cryptocurrencies internally, using not just a regular wallet but something called a “Multisig Wallet”.
This solves two major problems:
Using a “Multi-signature Wallet” (or Multisig for short), the owner can define core rules such as how many people have to approve a transfer out of the company’s wallet or convert it into fiat money.
For example, let’s say you want to name 3 responsible persons.
With a Multisig Wallet, you can easily set a rule that at least 2/3 of people have to approve a transfer of any crypto coins.
And the same could work with 3/5 or 4/8 — the specifics are up to the company to decide.
As a result, even if an employee gets compromised or is forced to send out funds to a malicious receiver, the transaction simply won’t go through.
Also, even if one of the 3 people loses access to their account, the other 2 people are still able to act without them.
Here’s a handy step-by-step illustration that shows exactly how the entire process works from end-to-end:
And the best part?
Building up such an infrastructure can be done very fast and allows anyone to launch crypto investment products centrally with ease.
By the way, the clients don’t necessarily have to understand how the internal infrastructure is built…
You only need to communicate your unique strategy of which coins are purchased and why (ex: they belong to the TOP20 coins, the tech-team considers them undervalued, etc).
Every fund knows best what’s interesting for its customers. But whatever the strategy is, you can easily execute it with such a basic infrastructure.