Proxy Crypto Ownership

An Age Old Problem..

Proxy ownership is the idea that you aren't the true owner of the asset in question. Instead, you're using an intermediary company or exchange which holds the equity for you. There are two tangible methods for this to be executed.. Lets explore them!

1) Direct User Ownership:

If you use a platform where you can export your crypto or stocks onto a different platform, then you could be a direct owner. Popular websites that feature this level of ownership include Binance, Bittrex, Gemini, Kraken.. Any platform where you can export the coins into your own external wallet.

This is the ideal level of ownership when it comes to cryptocurrency. Not your keys? Not your crypto! Although cliche and overused, this statement holds true. It allows you to spend your crypto how you choose, and aren't vulnerable to exchange hacks if your coins aren't stored there.

2) Proxy Ownership:

This is the model which is gaining popularity with recent app developments and socio-cultural interest in investing. Popular apps in this niche include CashApp, Robinhood, WealthSimple.. The commonality between these is that the user doesn't truly own their crypto. There are limitations conferred with this method of ownership, lets talk about them!

Security.. is one of the major concerns when it comes to this niche. If the exchange becomes compromised, you might lose your coins. This wouldn't be the first time that this has happened, and it wouldn't be the last. Exchanges are massive targets for nefarious individuals because hackers understand this model of storage. 

Usage.. Another aspect to consider is if you can physically spend the crypto yourself. In this proxy model of ownership you can't use the crypto on day to day purchases. This introduces a fundamental limitation because its against the core aspect of crypto: quick means of transaction. Not good!

Storage.. Using private cold wallets is hands down the best way to manage and store your crypto. We love our Nano Ledger for this exact reason. It provides the peace of mind which allows you to sleep at night because your crypto is no longer on an exchange.

So Why Does This Model Exist?

Good Question! I think that the single largest reason why this business model exists comes down to one thing: convenience. The average consumer on these iconic apps (Robinhood, CashApp, etc) might not be tech savvy. Buying, storing, and selling crypto can be complex, these apps solve that problem - but it comes at a price.  

The consumer will use what the consumer needs.

Back to blog

Leave a comment