IBM (NYSE: IBM) is continuing its foray into the crypto space by releasing its beta version of its custodial solution for digital assets through a third part, Shuttle Holdings, a New York investment firm. Its forthcoming Digital Asset Custody Service, or “DACS” for short, is built upon IBM’s private cloud and encryption technologies, coupled with support from a specially designed hardware security module.
Neither Shuttle Holdings nor other partnering companies will be storing any crypto tokens or private keys, but they will be offering the tools that will perform that service in the background for “banks, brokers, custodians, funds, family offices and high net worth investors who want to do self-custody, as well as exchanges.” Brad Chun, Shuttle’s chief investment officer, noted: We have a list of selected clients that we are launching limited service with this month, [which] is not open to the public yet and there is a wait list to get into our beta.”
We have a list of selected clients that we are launching limited service with this month, [which] is not open to the public yet and there is a wait list to get into our beta.”
IBM revealed its new DACS service in San Francisco last month at its “Think 2019” conference. At that time, Nataraj Nagaratnam, the tech giant’s CTO and director of cloud security, had told attendees how well positioned Big Blue was to provide custodial services via its cloud platform: “What better example than taking a financial technology that is changing the world. Look at digital assets; how do you secure the data? … [This is] top of mind for a lot of people in the financial industry.”
Rohit Badlaney, director of IBM’s “Z As a Service” cloud solution, also explained why large institutional clients gravitate toward the IBM solution: “For DACS, the on-premise pervasive encryption capabilities offered by IBM LinuxONE was a key differentiator in choosing IBM as the most secure platform for their offering.” The beauty of IBM’s service is that it can be integrated directly within a firm’s operating infrastructure, an obvious advantage over various “cold storage” wallet devices designed for the same purpose.
Cold storage wallet solutions are not appropriate for large-scale operations. Per one informed explanation: “While crypto custody was once the preserve of wallet providers and crypto exchanges, the promise of institutional investment entering the digital assets space has prompted a race to come up with safe, industrial-grade solutions that are also familiar in terms of usage to these large players.”
The IBM solution differs greatly from many of the cold storage processes that require a device that is separated from the network. Retrieving assets and private keys from this type of an environment has been a headache, but IBM’s approach can actually yield a more secure safeguarding service than with wallets, by employing a hardware security module (HSM), “a kind of lockbox that safeguards and manages digital keys in a tamper-proof environment.”
Chun elaborated: “There are always trade-offs between security and efficiency, but we do not utilize a traditional cold storage system. Instead, we keep keys at rest encrypted in multiple layers as data blobs so that an organization can store these backups using their pre-existing disaster recovery and backup processes and media.”
Chun also noted that the entire solution is applicable in other industries like real estate and identity verification, but with respect to the competitive field developing around HSM’s, the IBM service will be HSM-agnostic: “We focus on the entire solution, not just the HSM. If the HSM offering from Gemalto is better than what we are using, I would be happy to talk to them and incorporate them into our plans. IBM has an HSM we are using but we can easily switch it based on customer needs and demands.”
Custodial services will not be IBM’s first foray into the crypto space. It has chosen to focus on infrastructure and leverage its broad-based relationships across the globe. Aside from its development of the Hyperledger Fabric private blockchain for enterprises, it has also collaborated with the Stellar Foundation in other crypto projects. IBM is also not alone in the field of HSM solutions for digital assets. Switzerland’s Crypto Storage AG began rolling out its HSM-solution last week with its online banking partner, Swissquote.