Building a Foundation for Institutional Digital Assets

In the early days of cryptocurrency, securing digital assets was a huge challenge that seriously limited widespread adoption. This was the driving concern that the team at BitGo set out to solve when the company first launched. Driven by early optimism in Bitcoin, the team recognized that the complexity of key management and security were major barriers preventing both individuals and institutions from greater investment in digital assets.

BitGo started as a software company with the aim to help founder and CEO Mike Belshe's network of early adopters of Bitcoin securely hold this net new asset. The company's initial goal was to develop the first multi-signature wallet for Bitcoin, or a "two of three" key management system that provided both a layer of security and redundancy that was lacking in the market at the time.

This security model was chosen specifically because multi-signature (multi-sig) functionality was natively supported on Bitcoin. The "two of three" approach meant that users needed two out of three keys to sign a transaction, providing both security and a safety net - if one key was lost, the assets could still be accessed using the other two keys. This solution addressed both the security and usability challenges that were limiting cryptocurrency adoption.

As the cryptocurrency ecosystem evolved, BitGo recognized that institutional investors needed more than just secure software - they required regulated solutions. This led BitGo to transition from a pure software provider to a US federally regulated custodian. This move was strategic, as it provided clients with the assurance that their digital assets were being held by an entity overseen by recognized regulatory bodies.

BitGo's commitment to operating within strict regulatory frameworks has become a critical part of their success. Rather than establishing themselves in a jurisdiction with lighter oversight, the company has deliberately established a presence in markets with strict regulatory requirements. They've secured licenses in New York, which has one of the most rigorous state-level regulatory frameworks for digital assets in the US, and expanded internationally with regulated entities in Germany, Denmark, Switzerland, Singapore, and Dubai.

"Part of our strategy has been to set up shop in areas with mature regulatory structures," Frank Wang, Head of Fintech Sales at BitGo says. "If we can get the stamp of approval from a strict regulator like BaFin in Germany, that generally means we can also get the green light across a wide range of jurisdictions." This approach has helped BitGo build trust with institutional clients and position itself as a leader in compliant digital asset services.

Evolving to A Complete Digital Asset Platform

BitGo's evolution from a Bitcoin wallet provider to a comprehensive digital asset platform has been one step ahead of the cryptocurrency ecosystem as a whole. The company's journey has been marked by a strategic expansion of service offerings that are built on their foundation of secure custody.

"Over the last several years, it's really been about helping make digital assets useful," explains Wang. "The bottom layer is the custody layer, but then it's staking, borrowing and lending, trading, settlement - all of these other services are now being provided on top of this custody layer. It mirrors what happens in traditional finance."

A crucial aspect of BitGo's evolution has been their careful evaluation and integration of various DLT networks. The company applies rigorous criteria when deciding which protocols to support, looking beyond immediate financial incentives and assessing the long-term viability of potential networks. This led to their integration with Hedera in 2021, a decision driven by both technical and philosophical alignment.

The Hedera network stood out to BitGo for several key reasons. First, its unique technical architecture offered superior throughput and efficiency, with predictable transaction costs - crucial features for institutional adoption. Second, Hedera's focus on utility rather than speculation aligned with BitGo's vision for the future of digital assets.

"Look at the things that make Hedera unique in terms of throughput and efficiency, in terms of cost of transactions, as well as the companies part of the Council that are supporting it. If blockchains or DLTs are going to become mainstream, they are going to require everything including companies like those on the Council to invest in creating useful, interesting things on their network," Wang explains.

Hedera's governance model also provides an additional layer of compliance assurance, as Wang notes: "One of the most appealing things about Hedera is that the network nodes are run by the Hedera Council, so you don't have anonymous - or even worse - potentially sanctioned individuals or entities running nodes, and therefore earning fees off of a transaction." This structure appeals to regulated entities concerned about indirect exposure to sanctioned parties through network participation.

Advancing Web3 Through Hedera Governance

BitGo's decision to join the Hedera Council in February 2024 marked a significant deepening of their commitment to the network. This move was not taken lightly, as Wang explains: "Our joining the Council was very much a calculated decision. We're constantly pulled in multiple different directions, and deciding to join the Council wasn't necessarily a 'yeah, let's just do it and see what comes of it' kind of decision. It was very thought out and done with extremely high levels of confidence in Hedera."

The company saw Council membership as an opportunity to play a more active role in shaping the future of enterprise-grade DLT solutions. BitGo demonstrates this commitment by running their own Hedera node on their infrastructure.

The growing Hedera ecosystem has proven to be very attractive for financial services applications. The network's combination of high performance, security, and regulatory compliance has made it an ideal platform for institutional adoption. BitGo has leveraged their position to help guide projects toward the Hedera network, acting as a valuable channel partner for the ecosystem.

"We've become sort of a channel and have helped increase top of funnel," Wang notes. "We've sent projects to Hedera". This role has helped enhance the quality of projects building on Hedera, contributing to the network's reputation for enterprise-grade solutions.

BitGo's Vision for the Future on Hedera

BitGo is excited about the future that the Hedera ecosystem offers, particularly as the company expands its focus on enterprise adoption and real-world asset tokenization. The company sees Hedera as a crucial enabler for the next generation of financial services and Web3 applications, citing the network's unique combination of security, scalability, and predictable costs as fundamental advantages.

"We're seeing really interesting things happening now in the financial services space," says Wang, highlighting BitGo's involvement in upcoming Hedera-based financial products, including their planned custody services for new HBAR ETFs. This development signals growing institutional interest in Hedera's ecosystem and validates BitGo's strategic commitment to the network.

BitGo is particularly excited about Hedera's potential in enabling new business models around consumer data sovereignty and brand engagement. The team envisions a future where Hedera's infrastructure could power sophisticated loyalty programs: "You're going to see demand for technologies that enable new and novel use cases," he explains, describing scenarios where brand loyalty points could be tokenized, traded, and interlinked across different services - all powered by Hedera.

Looking at RWA, BitGo sees Hedera as uniquely positioned to support this emerging trend. "Services and infrastructure around that ecosystem still have to be built out," Wang acknowledges, but points to stablecoins as a proven first step. The company believes that Hedera's role in the tokenization of various asset classes sets it apart, from private securities to real estate, leveraging the network's enterprise-grade features and regulatory-friendly structure.

Hedera's upcoming permissioned network capabilities also factor into BitGo's future plans. "Hedera is looking at a permissioned offering that will allow a heavily privacy-focused company or entity to kind of have the best of both worlds," Wang explains, suggesting this development could open new opportunities for highly regulated institutions to benefit from DLT while maintaining necessary privacy controls.

As BitGo continues to expand its institutional-grade digital asset services, their position on Hedera's governing council puts them at the forefront of shaping these emerging opportunities. The company's commitment to running their own Hedera node and actively participating in network governance demonstrates their long-term investment in the ecosystem's success. Through this strategic partnership, BitGo is positioned to help drive the next wave of enterprise adoption of DLTs, with Hedera serving as a foundational technology for transforming traditional financial services and enabling new Web3 business models.

About BitGo

BitGo provides the most secure and scalable wallet solutions for the digital asset economy, offering regulated custody, staking and trading, and core infrastructure to investors and builders alike. BitGo secures approximately 20% of all on-chain Bitcoin transactions by value and supports more than 700 digital assets within its platform. BitGo provides the security and operational backbone for more than 1500 institutional clients in 50 countries, including many regulated entities and the world's top cryptocurrency exchanges and platforms.

For more information, please visit http://www.bitgo.com.