Introducing third-party custody for Newton; or, how we’re preventing the next QuadrigaCX

Newton is Canada’s first no-fee cryptocurrency platform. Check us out at newton.co.

We’ve partnered with Balance, Canada’s leading cryptocurrency custodian, to offer free, institutional-grade custody for every one of our customers.

Why is this important? When big institutions store assets, they expect them to be managed by a professional, independent custodian with rigorous financial controls and transparent business practices. You deserve the exact same protections when you’re storing cryptocurrency with us.

We’re the first Canadian retail platform to partner with a Canadian custodian, a crucial step in preparing for anticipated regulations aimed at preventing the next QuadrigaCX.

On the importance of custody

Regulators have traditionally required that commodities like gold or oil maintain a strict separation between broker (the one buying and selling) and custodian (the one holding assets in a warehouse/vault).

Without independent oversight, an unethical broker who also stores customer assets might be tempted to engage in bad behaviour: dipping into assets belonging to customers to fund operations, investing customer assets without their consent, fudging records to cover their tracks, and so forth.

These rules also recognize that storing valuable commodities safely is really difficult. Holding such assets makes you a target — gold, for example, is stored in centralized vaults run by professional custodial companies with the knowledge and experience required to prevent theft.

But third-party custody of funds is not just a good idea — it’s soon going to be mandatory.

A new standard for the Canadian cryptocurrency industry

Canadian regulators have hinted that they will likely require cryptocurrency exchanges/brokerages to store assets with an approved third-party custodian — a designation that would come with rigorous reporting requirements and significantly enhanced oversight.

We chose Balance because it has proactively engaged with Canadian regulators since its inception, and it is the closest we’ve seen to offering the controls and standard of care you would see from a qualified custodian in the traditional asset space.

Balance has next-generation safeguards in place. A few highlights:

• All transaction are signed on air-gapped Hardware Security Modules (HSMs), considered the gold standard for security by the payments industry.
• Private keys are replicated in multiple offline, geographically distributed, bank-grade vaults with 24/7 monitoring.
• Strict separation of concerns prevents any individual member of the Balance team from taking any action that might result in loss of funds.

Based on our research, we believe that Balance represents the cutting edge in crypto custodianship.

How this will prevent the next QuadrigaCX

It has long been understood that strict financial controls are crucial when dealing with large sums of money. They reduce exposure to kidnapping, fraud, theft, and preventable accidents that could result in serious losses for customers.

In QuadrigaCX’s case, Quadriga CEO Gerald Cotten was the sole custodian of funds for QuadrigaCX customers. With no controls and no oversight, he was able to hide his criminal negligence for over a year — and it could have continued for a long time. The cryptocurrency industry has, historically, seen far too many incidents like this.

By moving funds to a third-party custodian, we are accomplishing a few crucial firsts:

• All movement of funds in and out of our hot and cold wallets will now have an independent, auditable set of records maintained by a third-party organization.
• Customer assets will soon be insurable, a huge leap forward for Canadians who have been burned one too many times by disreputable companies.
• Mandatory multi-signature will ensure that no single member of the Newton team (including the CEO) can move funds by themselves, significantly decreasing the risk of loss due to fraud, theft, kidnapping, etc.
• Because Balance is focused on Canada, we expect it to continue to actively engage with regulators and develop capabilities uniquely suited to the Canadian market.

While we hope that the introduction of third-party custody gives our customers greater peace of mind while storing funds with us, you will always have the ability to withdraw your digital assets to an external address if you choose.

Creating trust in a trustless world

Newton is the first retail platform in Canada to custody funds with a third-party, Canadian custodian.

With no fees, rock-bottom spreads, and customer funds held in third-party custody, we’re now the best-positioned platform in Canada to make cryptocurrency mainstream.

There’s more to come soon, but for now — why not give Newton a whirl?