March 16th, 2022

How do we avoid virtual accounting?

digital assets provide an opportunity for non virtual accounts that utilize on-chain multi-signature setups
How do we avoid virtual accounting?

As both a regulated digital asset custodian and managed self-custody wallet provider, the technical questions CoKeeps are most often asked include:

In this article, we are going to explore the lengths to which CoKeeps goes in order to avoid virtual accounting – not only at a ledger level by segregating assets, but all the way through to our core systems and personal user credentials.

There are many custodians that utilise virtual accounting at a ledger level. In fact, any service provider that can offer free transactions between customers of the same system without first needing to deposit funds is most likely using virtual accounting. Storing the assets from multiple customers in a consolidated location or account is virtual. In the banking world, virtual accounts are clearly beneficial – but when it comes to digital assets, we strongly believe that they defeat the purpose of this new asset class and are bad for the ecosystem.

Unfortunately, there are some custodians who, despite not using virtual accounts, are nonetheless controlling all of the individual asset streams from a single monolithic central server or consolidated key store that ultimately maintains every customer’s assets.

In contrast, CoKeeps customers are provided a unique network of dedicated servers specific to their selected subscription plan, which not only ensures that each of our customers assets are segregated from each other, but every transaction is recorded on the respective ledger of the underlying currency being used for that transaction. This also removes the possibility of performing unrecorded transactions or accidentally losing transaction history, which is an extremely desirable property for regulators.

Each of the private computing networks that we provision with every subscription plan is designed around the regulatory compliance of a specific legal jurisdiction. They employ the same self managed identity and authentication methods as our core systems.

We do not store usernames and passwords throughout any of our systems, nor do we generate any of the API keys that are used throughout our multi-party computational systems. Instead, we utilise independent domain names as usernames in conjunction with broadcasting public keys through DNS records as a way for systems to authenticate users with realtime message signing. API credentials are generated by users and represented as cryptographic key-pairs, allowing users to only need to share their public keys.

The biggest downside to strictly avoiding virtual accounts remains on-chain transaction fees between users of the same system. However, this feature can be re-created in other ways, such as depositing assets that are then tokenized and utilised on private layer two networks. Another concern that some customers have is in regards to the lack of privacy that results from every transaction taking place on-chain. This is something that can also be catered for using Zero Knowledge privacy protocols where regulation allows.

By avoiding virtual accounts, CoKeeps are also able to offer custodial services without needing to enforce themselves as the custodians whilst also allowing for more complex setups that use multiple external custodians if required.

Beyond the flexible setup of multiple external trusted custodians, where regulation allows; it is also possible to define family members or friends for recovery. Rather than competing against traditional trustees, we seek to work with them to help improve their businesses and the corresponding services that we can then provide to others. Custodial fees are only ever applied to multi-signature accounts that require the manual signing of transactions by one of CoKeeps qualified human custodians. We do not have minimum or pier requirements for the value of assets under custody, nor do we enforce any restrictions as to the length of time that assets must remain under custody.

As the world continues to digitise traditional products and services the definition of digital assets expands. HSBC recently bought digital land using digital currency so they could construct their metaverse headquarters and as a result, CoKeeps accounts can be configured to enable specific individuals access to regionally approved ledgers derived from networks such as Bitcoin, Ethereum and Ripple. Customers can easily encrypt existing data files or create simple step by step instructions that can only be accessed by the right people at the right time and under the right conditions.

Published on March 16th, 2022 - written by



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