Coinbase Inc., the largest cryptocurrency exchange in the U.S., announced today the launch of its cold-storage and custodial service for digital currencies aimed at allowing institutional investors greater opportunity to enter the market safely.

This service, to be provided through Coinbase subsidiary Coinbase Custody, already accepted its first deposit last week. Cryptocurrency will be kept by Coinbase in what is called cold-storage, or a high-security digital currency vault that would require multiple parties to use private keys to unlock and move the currency or through other controls to prevent unauthorized access.

“Coinbase Custody is a combination of Coinbase’s battle-tested cold storage for crypto assets,” said Sam McIngvale, product lead at Coinbase Custody, who called it “an institutional-grade broker-dealer and its reporting services, and a comprehensive client coverage program.”

The service is designed to act as a safe cold storage for cryptocurrency to be used by business interests such as investors, hedge funds, exchange and startups launching their own tokens with initial coin offerings.

As a “custodial service,” Coinbase Custody will also offer dedicated account support, strict financial controls and other regulated services designed to increase the safety and security of trade transactions. This will include audit trails, segregation of duties and guaranteed response times for fund transfer requests.

Given the still rocky Wild West nature of the cryptocurrency industry and markets, such a high-security service may be necessary before institutional investors enter into it. Over the past few months, a company named Taylor lost $1.35 million worth of Ethereum to a hack and South Korean exchange Bithumb had $32 million in bitcoin and other cryptocurrencies stolen.

According to a report from cybersecurity firm Carbon Black Inc., theft and fraud have led to more than $1.1 billion in cryptocurrency lost in the first half of 2018 alone.

“This new cold-storage system has undergone rigorous penetration testing and cryptographic design review,” McIngvale said, “and we plan further, regular third-party examinations to ensure the platform’s ongoing security.”

At launch, Coinbase Custody will support bitcoin, Ethereum, Litecoin and Bitcoin Cash. The company plans to add support for more tokens and other assets with regular updates. McIngvale also commented that the company currently serves institutions in the U.S. and Europe and intends to expand into Asia before the end of the year.

This service grows out of the acquisition of three companies Coinbase announced last month: Keystone Capital Inc., a California-based Financial Industry Regulatory Authority Inc. registered broker; Venovate Marketplace Inc., another California-based company with financial licenses; and Digital Wealth LLC, a financial planning and investment management firm.

Coinbase Custody will benefit from the systems of the company’s partner Electronic Transaction Clearing, which is a registered broker with the United States Securities and Exchange Commission and a Financial Industry Regulatory Authority member subject to regulated financial reporting and independent audits.

The addition of more cryptocurrency tokens and assets by Coinbase to its custodial service will depend on additional regulatory licenses.

“Over 100 hedge funds have been created in the past year exclusively to trade digital currency. An even greater number of traditional institutional investors are starting to look at trading digital assets,” Brian Armstrong, chief executive of Coinbase, said about Coinbase Custody. ”By some estimates, there is $10 billion of institutional money waiting on the sidelines to invest in digital currency today.”

Getting on board with Coinbase Custody will be expensive, with an initial setup fee of $100,000 and the service is only available to institutional investors with a minimum of $10 million in deposits.

Image: Pixabay, Coinbase logo