Here’s a comprehensive look at the key acronyms and their meanings in the context of institutional crypto infrastructure.
1.MPC (Multi-Party Computation)
Multi-Party Computation (MPC) is an advanced cryptographic technique used to enhance the security of private keys. Instead of storing a private key in one place, MPC divides it into multiple fragments that are distributed across different systems or parties. These fragments work together to authorise transactions without ever combining into a single key. This ensures that no single point of failure exists, significantly reducing the risk of theft or compromise.
2. HSM (Hardware Security Module)
A Hardware Security Module (HSM) is a tamper-resistant hardware device designed to generate, store, and manage cryptographic keys securely. HSMs are widely used by banks, payment processors, and institutional custodians to protect sensitive data and digital assets. They are certified to international standards such as FIPS 140-2 or 140-3, ensuring their robustness against both physical and digital attacks.
3. AML (Anti-Money Laundering)
Anti-Money Laundering (AML) refers to the regulatory framework that prevents digital assets from being used for illicit purposes such as money laundering or terrorist financing. Custodians and exchanges implement AML measures through transaction monitoring, identity verification, and suspicious activity reporting. AML compliance is essential for maintaining transparency and trust in institutional crypto operations.
4. KYC (Know Your Customer)
Know Your Customer (KYC) is the process by which financial institutions verify the identity of their clients before offering services. In digital asset custody, KYC procedures help prevent fraud, ensure legal compliance, and establish the legitimacy of clients. Typical KYC checks include verifying personal identification documents, addresses, and the source of funds.
5. CASS (Client Asset Sourcebook)
The Client Asset Sourcebook (CASS) is a regulatory standard established by the UK’s Financial Conduct Authority (FCA). It defines how firms should handle and protect client assets, including segregation of funds, record-keeping, and safeguarding requirements. Adhering to CASS principles ensures that clients’ digital assets remain distinct from company assets, offering greater transparency and protection.
6. Cold, Warm, and Hot Wallets
These terms describe the level of connectivity and security of digital asset storage solutions.
- Cold wallets are completely offline and provide the highest level of security for long-term storage.
- Warm wallets connect to the internet occasionally, offering a balance between accessibility and safety.
- Hot wallets remain online and are used for frequent transactions, though they carry higher exposure to cyber risks.
Institutional custodians typically use a combination of these wallet types to balance liquidity and protection.
7. PoR (Proof of Reserves)
Proof of Reserves (PoR) is a verification method that demonstrates a custodian or exchange holds sufficient assets to back its client balances. It involves cryptographic audits or third-party attestations that compare on-chain holdings with user liabilities. PoR enhances transparency and helps rebuild trust in the digital asset sector, particularly after several high-profile exchange collapses.
8. API (Application Programming Interface)
An Application Programming Interface (API) enables secure communication between different systems and platforms. In crypto custody, APIs are used to integrate trading desks, reporting tools, compliance systems, and blockchain networks. They allow institutions to automate transactions, monitor holdings, and manage portfolios efficiently within a connected ecosystem.
9. DeFi (Decentralised Finance)
Decentralised Finance (DeFi) refers to blockchain-based financial applications that operate without intermediaries such as banks or brokers. DeFi allows users to lend, borrow, and trade assets directly through smart contracts. For custodians and asset managers, DeFi represents both an opportunity and a challenge. It expands access to yield-generating instruments but requires robust security and risk controls.
10. CBDC (Central Bank Digital Currency)
A Central Bank Digital Currency (CBDC) is a digital version of a nation’s official currency, issued and backed by its central bank. CBDCs combine the trust and stability of traditional fiat currency with the efficiency of digital transactions. Custodians are preparing their infrastructure to support CBDC custody alongside cryptocurrencies, as these assets become an integral part of global financial systems.
11. DLT (Distributed Ledger Technology)
Distributed Ledger Technology (DLT) underpins blockchain systems, enabling the recording of transactions across multiple computers in a secure, immutable, and transparent way. DLT eliminates the need for a central authority, ensuring that all network participants share a consistent version of transaction history. This forms the foundation for secure digital asset management and custody solutions.
12. TPS (Transactions Per Second)
Transactions Per Second (TPS) measures the processing capacity of a blockchain network. It determines how many transactions can be validated within a second. Higher TPS rates indicate greater scalability and efficiency, which is crucial for institutional adoption of digital assets and real-time settlement environments.
13. RWA (Real-World Assets)
Real-World Assets (RWA) refer to the tokenisation of tangible assets such as real estate, commodities, or bonds onto blockchain networks. By representing these assets digitally, institutions can offer fractional ownership, improve liquidity, and streamline settlement processes. Custodians managing RWAs must ensure compliance, valuation accuracy, and secure asset linkage between physical and digital forms.
Conclusion
Crypto custody and asset management rely on a complex ecosystem of technologies, standards, and regulations. Understanding these acronyms makes institutional digital asset operations secure, transparent, and compliant. Want to know more? Contact us.