Decrypting Crypto Trends: Why is Square moving into the Bitcoin custody space?

By Sharat Chandra

Square, one of the world’s biggest fintech companies, with a market capitalisation of $107 billion, wants to build a Bitcoin hardware wallet to make Bitcoin custody mainstream. Jack Dorsey, CEO of Square, announced on Twitter that the wallet, an inclusive product that brings a non-custodial solution to the next 100 million people, would be built entirely in the open, from software to hardware design, and in collaboration with the community.

Square’s foray into the digital asset custody and service did not surprise many. In June, Jack was at his eloquent best at Bitcoin 2021 Conference held in Miami and divulged that Square was toying with the idea of a hardware wallet.


Deconstructing Square’s recent move
The global digital asset management (DAM) market size is projected to grow from $3.4 billion in 2020 to $6.0 billion by 2025, at a compound annual growth rate (CAGR) of 12% . Even institutional players such as Morgan Stanley, Goldman Sach and corporates have taken cognizance of the growth potential of the digital currency space.

There is a global demand for secure custody alternatives to manage and use digital assets. It is a no-brainer why Square wants to be a force to reckon with in this space.

Cryptocurrency wallets are used to receive, send and hold digital currencies. Hardware cryptocurrency wallets are also termed as ‘Cold Wallets’ are considered more secure than ‘Hot Wallets’ such as desktop and mobile wallets. All market participants including retail and institutional investors have spoken in unison about asset security.

Security of Hardware Wallets
There have been instances of hardware wallets getting hacked. In July last year, Bitcoin hardware wallet provider Ledger was hacked. More than 1 million user details were compromised. Square would have to address concerns around wallet security to position itself as a dominant and trusted player in the custody service domain.

The Role of Digital Asset Custody
Digital asset custodians have a significant role to play in expanding the digital asset investment landscape. As digital assets are more vulnerable than traditional ones, safekeeping is of paramount importance. To win investor’s trust, digital asset custodians have to go the extra mile in ensuring security, transparency and affordability of custody services.

Some regulators have been proactive in regulating this evolving space. Earlier this year, Thailand’s Security and Exchange Commission announced that digital asset custodian wallet services will come under the purview of Digital Asset Business Law to prohibit the usage of digital assets in illicit and money laundering activities.

The digital assets industry is borderless and fluid. It needs a well-defined custodial framework for balancing investor protection and growth opportunities for investors.