Author: Helen Partz, Cointelegraph; Compiler: Songxue, Golden Finance
As 10 U.S. asset management firms begin trading billions of dollars in spot Bitcoin exchange-traded funds (ETFs), investment Investors may wonder how these issuers ensure that the underlying assets of their products are sufficiently secure.
Although cryptocurrency exchanges have lost relatively few funds to hacks over the past few years as security continues to improve, the community has witnessed a number of exchanges such as Poloniex suffer in 2023. Million dollar attack. What could make a spot Bitcoin ETF safer than trading on an exchange like Poloniex?
Ophelia Snyder, co-founder of 21Shares and its parent company 21.co, said the Bitcoin custody products used by spot Bitcoin ETF providers are "completely different from what retail investors get on cryptocurrency exchanges."
"We use Coinbase as the custodian for our US products. I invest in Coinbase under the name Ophelia Snyder and I invest in Coinbase under the name 21Shares, and the two products are structurally different." executives said in interviews in early January.
21Shares is one of the companies involved in launching a spot Bitcoin ETF in the United States, partnering with ARK Invest to launch the ARK Invest and 21Shares Spot Bitcoin ETF (ARKB). Headquartered in Europe, 21.co and 21Shares also operate a number of cryptocurrency exchange-traded products (ETPs) in the region and are one of the largest cryptocurrency ETP providers in the world.
When someone places assets on an exchange as a retail user, trading platforms like Coinbase often place customer assets on integrated accounts, where user assets such as Bitcoin are pooled together without strict isolation. “It and everyone else’s money is there,” Snyder noted of such trading accounts, adding that ARK and 21Shares’ spot Bitcoin ETFs use strictly segregated accounts. She said:
"Our funds go into our own specific wallet. Multiple wallets actually, because we don't want to have a single attack surface. That way, we actually spread the money across in multiple wallets."
Snyder mentioned that for its European offering, 21Shares is also diversifying with custodians to provide better security.
Snyder said spot Bitcoin ETFs are "also safer from a bankruptcy perspective." The executive said:“If everyone at 21Shares disappeared tomorrow, there would be a mechanism to use a trustee to recover these assets directly from Coinbase.” Snyder added, Even if Coinbase goes bankrupt, there are still ways to not commingle these assets.
To add another layer of security to the Bitcoin ETF, 21Shares also uses multiple authorization steps. "No one person can actually move these assets within the organization," Snyder said. She saidThis level of security is achieved by splitting the private key into multiple parts and keeping those parts in geographically distributed vaults.
Snyder said at the X Spaces (formerly Twitter Spaces) conference on January 10 that 21Shares has been testing with custodians for five years. "You can't treat it like any other asset in the world," the executive stressed. And adds thatBitcoin ETF providers must keep their Bitcoins offline in wallets that never access the internet.
The long-awaited first U.S. spot Bitcoin ETF was approved on January 10, 2024, with the first BTC ETFs starting trading the next day. At launch, eight out of 10 spot Bitcoin ETF providers relied on Coinbase custody as institutions, with some issuers such as Fidelity Investments opting for its proprietary custody solution Fidelity Digital Asset Services ).
Another Bitcoin ETF issuer, VanEck, prefers to escrow the underlying BTC to Gemini, the cryptocurrency trading platform co-founded by Cameron and Tyler Winklevoss. As previously reported, Winklevoss became one of the SEC’s first-ever applicants for a spot Bitcoin ETF back in July 2013.
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