This article dives deeper into how CoinHQ manages and stores cryptocurrency.
Copper
Copper
CoinHQ uses Copper as our custodial partner for storing cryptoassets.
Copper is a cryptocurrency custodial service based in Switzerland that is used by many large cryptocurrency-based businesses.
Copper provides both hot and cold crypto custody for CoinHQ. The hot custody is what we use for funds stored in customer portfolios and cold custody is what we use for Vault.
You can read more about Copper and Nemean services here.
Hot vs Cold - What's the difference?
Hot
CoinHQ uses hot wallets for funds stored in portfolios. A hot wallet is a cryptocurrency wallet that is connected to the internet. Hot wallets can quickly sign transactions and move cryptoassets with ease. Using hot wallets allow our customers to quickly buy, receive, sell and send their cryptoassets through our platform.
Cold
CoinHQ uses cold wallets (cold storage) for funds stored in Vaults. A cold wallet is a cryptocurrency wallet that is not connected to the internet. Cold wallets require more effort to sign transactions (withdrawals) but ultimately provide stronger security for long-term storing of crypto assets.
Key Sharding
Key sharding is used with cold custody - vaults.
Key sharding is a security technique used in digital asset management, specifically with cold storage vaults. It involves dividing a digital key into several smaller segments, or shards, which are then used to sign transactions without the need for central assembly or creation of the complete key. This process enhances security as no single party holds the complete key and eliminates the risk of internal misuse.
When a transaction is to be signed, the individual shards are combined to recreate the original key and verify the transaction. The primary shard is stored in a secure location while backup shards are transported to a physically secure and insured off-site vault. With key sharding, clients can still recover their assets even if they lose access to one of the primary shards as multiple parties hold a piece of the key.
An example of key sharding in practice is at CoinHQ, where three shards are held by different parties (CoinHQ, Copper, and Nemean services). A withdrawal from the vault would require two out of the three parties to sign, ensuring that no single party has full control over the assets.
In conclusion, key sharding is a secure and effective method of managing digital assets, as it eliminates the potential for internal misuse and provides multiple layers of protection for the digital key.
Rights over funds
All crypto assets stored in vaults are the full ownership of the customer that deposited them, not CoinHQ’s.
In any event of bankruptcy or liquidation, the customer’s funds will not be included in the company’s assets and will not be subject to any creditor claims.
From our terms & conditions, 10.1:
The customer retains full control and ownership of their funds at all times. We do not have any right, title, or interest in the customer's funds. In the event that our company is liquidated, the customer's funds will not be included in the company's assets and will not be subject to any claims of the company's creditors. The customer's funds will remain safe and secure, and the customer will have the first right to receive their funds back in full.