Greater Sioux Falls Chamber of Commerce
Business Sense

Understanding cryptocurrency

Cryptocurrencies were born in 2009 out of the Great Recession when Bitcoin was created as the first global decentralized currency. In the last 13 years, cryptocurrency has grown from a niche industry into an established global asset class of its own. With exchanges providing platforms and applications to buy and sell thousands of different cryptocurrencies, to custody solutions providing safe and secure storage for these assets, we are now seeing institutional adoption take hold.

For most of its history, this asset class has mainly been fueled by a purely retail investor base who have arguably left institutional investors and other professionals behind when it comes to grasping the opportunities in the space. Given the dynamic nature and sheer volatility of these assets, it can be a daunting task to define the space or even understand the strategic rationale of introducing crypto into a business.

Where is it?

Custody is a broad definition in traditional finance that refers to the ability to hold, move and protect assets. In traditional finance, a custodian may hold a deed to real estate, or a stock certificate showing ownership to their securities. The rise of the crypto industry has brought increased attention to the security of these assets. Different types of holders of cryptocurrency require different solutions for custody. But let’s first start out with what you actually hold when you own cryptocurrency.

The saying in the crypto industry is “Not your keys, not your crypto.” Ownership in crypto comes down to a cryptographic keypair. When you want to hold your own crypto, or you trust another institution to do it for you, they will normally hold it in something called a wallet. A wallet is similar to a bank account that holds U.S. dollars, but with some small differences. A wallet does not actually hold the cryptocurrency, it holds the cryptographic keypair.

How do you use it?

When you create, or open a wallet, you get two things, a public key and private key. A public key is a long string of letters and numbers that allows you to receive the funds and lives on the blockchain forever. A private key is an astronomically large number, which allows you to send funds across the blockchain. The private key is the most important part of the wallet because it gives you control of the crypto assets. How the public and private keys work together is fundamental to understanding how transactions work.

Custody and safekeeping of cryptocurrency is the key component. The digital asset space has changed immensely in the past several years and nowadays you do not need to go down the same rabbit holes previous users went down to store digital assets. There is no perfect solution for storing crypto as there are a series of tradeoffs for individuals and funds, and you should take your own personal situation and risk tolerance into consideration.

When you think about the long-term prospects of crypto, whether you are a believer or non-believer, this is the way of the future of finance. Whether you are an attorney doing estate planning for a client or a wealth manager dealing with a client who has millions invested in bitcoin, being educated on this new technology and asset class is quite valuable.

Right now, we are still very early, but the message is clear, crypto is here to stay. The rapid growth of this ecosystem presents new opportunities and challenges for the traditional financial system. Technological innovation is ushering in a new era that makes financial services cheaper, faster and more accessible. A record amount of money has entered this space in the last decade, $30 billion in 2021 alone.

As professionals, if we can learn to embrace this industry instead of opposing it, we will all be headed in the right direction. Security and safeguarding of these assets should be the top of our list, along with education at all levels. Our financial system is entering a brave new world and we should all be excited to be a part of it.

Meet the author

Kyle Pickner

Kyle Pickner previously led the financial operations for one of the world’s largest digital asset custodians, taking them from a start-up to a multi-billion-dollar institution. He joined Plains Commerce Bank in 2021 as Chief Trust Officer. There, he works to bridge the gap between traditional finance and cryptocurrency.