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What is BitGo?

BitGo is a company with one goal in mind–enabling institutional investment in cryptocurrency. But why should this be necessary? Doesn’t crypto provide a means of avoiding banks and financial institutions?

Cryptocurrencies and blockchain technologies need the trust and investment of financial institutions if they are ever to gain true mainstream adoption. After all, the big money lies with institutional investors. One New York Times columnist concurs. In June, Omid Malekan of the NYT wrote:

Institutions control so much money that they own half a trillion dollars’ worth of Apple alone, and that’s just one stock within a single asset class. If all the hedge funds and family offices out there decided to commit a fraction of that capital to a diversified portfolio of cryptocurrencies, they may double the size of the sector.

There are signs that the interest of banks and financial institutions is becoming more real. In May, Goldman Sachs became the first regulated institution to allow Bitcoin trading. Only last month, the Grayscale Investments biannual report stated that 56 percent of its $250m investments so far this year have come from institutional investors.

So the institutions are showing interest. But current investment levels seem to represent dabbling, rather than diving.

The fact is that given the infancy of blockchain and cryptocurrencies there is currently limited infrastructure enabling involvement from institutional investors. Banks and financial institutions are subject to local financial regulations concerning security and privacy. Public blockchains such as Bitcoin just aren’t designed to meet those requirements.

Enter BitGo

BitGo provides Security-as-a-Service to institutional investors. The company started in Palo Alto, California in 2013. It went on to raise $12m in venture capital funding in 2014, followed by a further $42.5m last year.

BitGo Homepage

The BitGo business model has multiple arms, comprising the following:

  • Custody services for institutional investors
  • Multi-signature wallets for enterprise investments
  • Customized private blockchains for the financial world
  • Platform API, which enables developers to integrate BitGo solutions into their blockchain projects
  • BitGo Instant—an instant payment solution that avoids the transaction closing time common for cryptocurrency transactions

Multi-Signature Wallets

Most of the cryptocurrency wallets on the market today are not fit for use by banks, companies and other institutions. In general, corporate spending requires more than one authorizing party. Most crypto wallets are designed for use by a single party.

BitGo is the pioneer of multi-signature digital wallets. These wallets require more than one party to sign off on a cryptocurrency transaction without taking custody of the digital assets themselves.

The BitGo software allows a company to create its own policies and procedures for the authorization of payments, which ensures legal compliance with any local legislation governing corporate transactions.

Custody Services

Crypto custody solutions are not unique, as Hong Kong crypto investment company Xapo and US-based mega-exchange Coinbase are already in a similar space. However, BitGo also offers institutional investors the custody solution they need to assure regulators that their crypto investments are held securely and in line with local legislation.

Customized Private Blockchains

Bitcoin and other public blockchains generally do not meet the legislative requirements for institutional investors. Therefore, a further service offered by BitGo is the development of customized private blockchains. Using such a customized solution, institutional investors can trade digital currencies.

One example is the RMG (Royal Mint Gold) token. The UK Royal Mint developed this token to enable the trading of gold as a blockchain-based asset. The RMG trading platform was built in collaboration with BitGo and AlphaPoint to provide a compliant solution for institutional investors.

Royal Mint Digital Gold

Platform API

The BitGo platform offers an API so that developers can integrate the multi-signature wallet functionality into their own Bitcoin applications. Essentially, this means that any new app or software taking Bitcoin as payment can take advantage of the BitGo wallet functionality as a payment method.

BitGo Instant

BitGo also offers instant Bitcoin transaction functionality through BitGo Instant. A standard Bitcoin transaction takes up to 10 minutes for the next block mining to happen. During this time any pending transaction is in a “zero-confirm” state until its inclusion in the next block.

BitGo Instant allows instant transactions by effectively acting as a payment guarantor. The company instantly honors any payments sent, providing the same kind of instant payment services offered by traditional financial middlemen like Visa or PayPal. Crypto exchange BitStamp is among the clients using BitGo Instant.

In the News

BitGo was unfortunately implicated by news outlets in the 2016 hack of Hong Kong exchange Bitfinex, where nearly 120k Bitcoins were stolen. The company firmly denied any knowledge or wrongdoing.

To belay any residual security doubts, a July press release described how the company has recently achieved a Service Organizational Control 2 (SOC 2) audit with Deloitte. The SOC 2 report provides assurances to clients about the effectiveness of security controls around their confidential information.

BitGo Safe

Predictive UTXO Management

BitGo has also recently implemented predictive UTXO management. UTXO stands for unspent transaction output and refers to a scenario where coin holders have multiple small fragments of Bitcoin sitting in their digital wallets.

The situation is analogous to having a lot of spare change in a real wallet, as a result of having spent all your banknotes. Therefore, UTXO is the process of converting the small change to larger denominations.

However, due to fees, this can be a costly process for high-volume transaction wallets. The “predictive” element refers to using low-fee periods to enable these conversions, hence reducing the overall fees for individual wallet holders.

Finally, BitGo has also recently established a partnership with Cinnober, which creates crypto exchange technology. The partnership enables institution-grade exchange technologies, allowing banks and financial institutions to invest in crypto using the everyday exchanges that retail crypto investors use.

Conclusion

The onboarding of institutional investors to the crypto space is an essential development in ensuring the longevity of digital currencies and broader blockchain technologies. BitGo has already attracted significant venture investment and is positioning itself as a critical player in a not-yet-crowded market. The company is, therefore, one to watch.


This article by Sarah Rothrie was previously published on Coincentral.com

About the Author:

Sarah ran away from a corporate job so she could travel the world. After doing that, she found herself a much-loved new career as a freelance blockchain technology writer. She is now a full-time digital nomad, who travels the world while working on her laptop. In addition to writing and researching, she also runs her own websites – find out more at sarahrothrie.com. You can usually locate her somewhere near the food.

Coins, Coins Everywhere

When starting cryptocurrency trading, the vast number of coins to choose from can be overwhelming. From the thousands out there, how can you possibly decide which few to keep in your portfolio?

Although there are an endless amount of strategies when choosing coins, there are a few different tactics you should follow to minimize your risk. In this guide, we’ll teach you the tips and tricks on building your portfolio, so you have a more successful cryptocurrency trading experience.

Diversify Across Market Caps

A great way to minimize your downside risk when cryptocurrency trading is to diversify your holdings across different market caps.

In case you don’t know, the market cap of a cryptocurrency is its price multiplied by its circulating supply. Usually, the higher the market cap of a coin, the less volatile it is. A properly diversified portfolio contains a mix of large (>$5 billion), medium ($250 million to $5 billion), and low (<$250 million) market cap coins.

Large market cap coins like Bitcoin and Ethereum may not experience the same 40-50% runs that smaller altcoins do, but their price typically holds better in bear markets.

How you diversify among these classes depends on your risk tolerance. If you think that investing in cryptocurrency is already a gamble, a portfolio that consists 95% of large-cap coins may be appropriate for you.

Maybe you have disposable income, though, that you wouldn’t be too upset losing. In that case, it may be worth putting over half of your portfolio in small-cap cryptocurrencies. Coins in this class have a high probability of being worth nothing down the road, but the ones that end up growing 100-200x could make the risk worth it.

In the end, you should do a serious evaluation of your risk tolerance as well as the amount of money you’re willing to lose and choose your market cap split based on that.

Consider the Industry

Another thing to consider when building your cryptocurrency portfolio is the industry that each coin is targeting. There are a couple of different ways you can approach this.

Diversify Across Industries

Once again, diversity is key. Because blockchain is still young, it’s difficult to predict which sectors will be most accepting of the new technology. To hedge against this risk, it’s recommended that you invest in coins across different industries.

You can group the most popular cryptocurrencies into a few different categories:

These are just a few of the categories in which you can place coins, and you’ll quickly find that there’s plenty of overlap for some of them. The idea of this strategy is to avoid investing too heavily in any one category. If for some reason that category ends up bombing, you don’t want to be left holding the bags.

Bitcoin TradingDouble-down on Your Favorite Industries

Even when holding coins across a diverse set of industries, you should consider putting additional capital in the industries that you’re most confident in.

There’s a popular notion in the cryptocurrency industry that only one coin per category will win out. But, that just isn’t the case. Take a look at any other business sector. Delta, American, Southwest (airlines), AT&T, Verizon, T-mobile (cell carriers), Chase, Wells Fargo, Bank of America (financial institutions) – and the list goes on and on. People have their preferences and categories are large enough for multiple cryptocurrencies to survive.

For example, if you think blockchain and file storage is inevitable, you may invest in Sia, Filecoin, and Storj. Or, if you’re a big believer in supply chain projects, VeChain and Waltonchain could take up a considerable amount of your portfolio.

Look for Hidden Gems (if you have the time)

The best coins to have in your portfolio are oftentimes the ones that not many other people have. There’s wisdom in going against the crowd.

Finding coins that haven’t haven’t become popular yet is a time-consuming process, though. It usually involves days (or even weeks) of research and slogging through a bunch of white papers. Even reviewing fifty projects may only lead to one or two that you deem worthy to invest in.

However, these one or two coins could be the key to an uber-successful portfolio. Let’s look at some examples:

  • Early investors in AntShares (now NEO), have seen ~160,000% return on their investment.
  • An investment in Bitquence (now Ethos) would have brought you a 4,300% return.
  • And, your portfolio would’ve grown by almost 4,000% by finding OmiseGO early.

As you can see, there’s immense value in finding coins early. If you have the time to research and enough money to take the risk, it could really pay off.

Cryptocurrency Trading is All Trial and Error

As you build out your cryptocurrency trading portfolio, you’ll probably find other tactics that also fit in well with your trading strategy. Additionally, you’ll most likely try out advice that sucks. You may even find that you don’t agree with the tips listed here.

And, that’s okay. Becoming a cryptocurrency trader is a learning process, and each investor inevitably molds their own unique style as they become more experienced. The important thing to remember is to keep an open, yet skeptical, mind and enjoy the ride.

This article by Steven Buchko was previously published on Coincentral.com

About the Author:

Steven Buchko is a managing editor at Coin Central and a blockchain investor. He’s also the co-founder of Coin Clear, a mobile app that automatically turns your daily spending habits into cryptocurrency investments.

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