{
 "failure_mode": "custody-and-key-loss",
 "specific_names": [
  "Irrevocability of decentralized errors",
  "Irrevocability of error under code-is-law",
  "cold storage retrieval latency",
  "combined custody and brokerage role",
  "custody gap blocks institutional entry",
  "exchange IOU substitution for asset ownership",
  "exchange honeypot",
  "hot wallet exposure",
  "irrecoverable private key loss",
  "no written loss allocation policy",
  "ownership surrender as price of access",
  "single agent key person risk",
  "underdeveloped custody suppresses institutional demand",
  "uninsured custody providers"
 ],
 "count": 14,
 "claims": [
  {
   "id": "kaal:claim:3227967-034",
   "url": "https://wulfkaal.github.io/claims/3227967-034",
   "claim": "In a truly decentralized system any mistake, such as a stolen or lost password or a programming bug, is permanent and irrevocable.",
   "specific_name": "Irrevocability of decentralized errors",
   "conditions": [
    "truly decentralized systems with no reversal authority"
   ],
   "source": "Legal Education in a Digital Age Why 'Coding for Lawyers' Matters",
   "year": "2018",
   "quote": "Remember that in a truly decentralized system, any mistakes (stolen/lost passwords, programming bugs, etc.) are permanent and irrevocable.",
   "citation": "Mark Fenwick, Wulf A. Kaal, Erik P.M. Vermeulen, Legal Education in a Digital Age Why 'Coding for Lawyers' Matters (2018). SSRN: https://ssrn.com/abstract=3227967"
  },
  {
   "id": "kaal:claim:3227933-021",
   "url": "https://wulfkaal.github.io/claims/3227933-021",
   "claim": "In a truly decentralized system where code is law, any mistake such as a stolen or lost password or a programming bug is permanent and irrevocable, because there is no authority able to reverse it.",
   "specific_name": "Irrevocability of error under code-is-law",
   "conditions": [
    "truly decentralized systems where code is law"
   ],
   "source": "Why 'Blockchain' Will Disrupt Corporate Organizations",
   "year": "2018",
   "quote": "Remember that in a truly decentralized system, the code is law. This means that any mistakes (stolen/lost passwords, programming bugs, etc.) are permanent and irrevocable.",
   "citation": "Mark Fenwick, Wulf A. Kaal, Erik P.M. Vermeulen, Why 'Blockchain' Will Disrupt Corporate Organizations (2018). SSRN: https://ssrn.com/abstract=3227933"
  },
  {
   "id": "kaal:claim:3936876-003",
   "url": "https://wulfkaal.github.io/claims/3936876-003",
   "claim": "Without the ability to rely on proven custody providers, mainstream and legacy institutional investors are restrained from making digital asset investments for legal or business reasons.",
   "specific_name": "custody gap blocks institutional entry",
   "conditions": [
    "applies to mainstream and legacy institutional investors"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "Without the ability to rely on proven custody providers, mainstream and legacy institutional investors are restrained from making digital asset investments for legal and / or business reasons.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-004",
   "url": "https://wulfkaal.github.io/claims/3936876-004",
   "claim": "The majority of digital asset custody providers and digital asset exchanges require customers to surrender ownership of their digital assets as a precondition for access and trading.",
   "specific_name": "ownership surrender as price of access",
   "conditions": [],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "The majority of digital asset custody providers and digital asset exchanges are requiring customers to surrender digital asset ownership in order to get access and trade.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-010",
   "url": "https://wulfkaal.github.io/claims/3936876-010",
   "claim": "A private key differs from a password in that it is immutable and cannot be reset, so if the key is lost or stolen access to the digital asset may be permanently lost.",
   "specific_name": "irrecoverable private key loss",
   "conditions": [
    "applies to key based digital asset ownership on public blockchains"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "However, private keys are distinguishable from a password in that a private key is immutable – it cannot be reset.82 If a user loses their private key or if the private key is stolen, access to the digital asset may be lost.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-011",
   "url": "https://wulfkaal.github.io/claims/3936876-011",
   "claim": "Hot storage buys easy access and quick transferability of digital assets at the cost of exposure to cyber attacks and to the difficulty of keeping private keys safe.",
   "specific_name": "hot wallet exposure",
   "conditions": [
    "wallets stored and accessible online"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "Hot storage ensures the easy access and quick transferability of digital assets but is also subject to possible asset security issues in the form of cyber attacks or issues with keeping private keys safe.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-013",
   "url": "https://wulfkaal.github.io/claims/3936876-013",
   "claim": "Centralized cryptocurrency exchanges require users to hand over their assets and then act as custodian, issuing what are essentially IOUs for users to trade with on the platform.",
   "specific_name": "exchange IOU substitution for asset ownership",
   "conditions": [
    "centralized exchanges, as distinct from decentralized exchanges"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "These centralized cryptocurrency exchanges require users to hand over their assets to the exchange, who then acts as a custodian and essentially issues IOUs for users to trade with on the platform.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-014",
   "url": "https://wulfkaal.github.io/claims/3936876-014",
   "claim": "Because a wallet provider or exchange that has custody of a digital asset gains full control over transactions, hacking a digital asset exchange is equivalent to robbing a bank: the attacker obtains valuable cryptocurrency that can be cashed out.",
   "specific_name": "exchange honeypot",
   "conditions": [
    "exchanges holding pooled customer assets in hot storage"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "As such, a hack of a digital asset exchange is akin to robbing a bank-- getting hold of valuable cryptocurrencies that they can cash out of.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-017",
   "url": "https://wulfkaal.github.io/claims/3936876-017",
   "claim": "Custodial exchanges are largely unprepared for breach: only 53 percent of small custodial exchanges and 78 percent of large custodial exchanges have a written policy setting out what happens to customer funds if a security breach causes loss.",
   "specific_name": "no written loss allocation policy",
   "conditions": [
    "custodial cryptocurrency exchanges surveyed in the 2017 benchmarking study"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "Just 53% of small custodial exchanges and 78% of large custodial exchanges have a written policy outlining what happens to customer funds in the event of a security breach resulting in the loss of customer funds.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-020",
   "url": "https://wulfkaal.github.io/claims/3936876-020",
   "claim": "Cold storage trades security for accessibility: retrieving digital assets from cold storage can take many hours or even days, which makes cold storage especially ill suited to dynamic trading strategies.",
   "specific_name": "cold storage retrieval latency",
   "conditions": [
    "assets held in cold storage devices",
    "matters most for actively traded positions"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "In some cases, it can take many hours or even days for investors to obtain control of digital assets that are stored in cold storage devices. The timing makes it especially difficult to use cold storage security for dynamic trading strategies.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-021",
   "url": "https://wulfkaal.github.io/claims/3936876-021",
   "claim": "Cold wallets typically lack the multisig feature that is common in hot storage, so the single employee acting as agent for a corporation may be the only access point to the corporate digital assets.",
   "specific_name": "single agent key person risk",
   "conditions": [
    "corporate or treasury holdings in cold storage without multisig"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "Accordingly, the person who acts as an agent to a corporation who holds the assets on behalf of the company may be the only access point to the corporate assets.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-022",
   "url": "https://wulfkaal.github.io/claims/3936876-022",
   "claim": "Institutional investors are less likely to engage in digital asset investments where custody solutions for digital assets are underdeveloped, and they find it difficult to commit fully until a reliable and respected custody solution exists.",
   "specific_name": "underdeveloped custody suppresses institutional demand",
   "conditions": [
    "institutional investors with client safety obligations"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "Institutional investors are less likely to engage in digital asset investments if the custody solutions for digital assets are underdeveloped.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:3936876-033",
   "url": "https://wulfkaal.github.io/claims/3936876-033",
   "claim": "Insurance coverage among digital asset service providers is far from universal: 46 percent of surveyed service providers reported not being insured against any risks.",
   "specific_name": "uninsured custody providers",
   "conditions": [
    "surveyed cryptoasset service providers, 2020 benchmarking study"
   ],
   "source": "Custody of Digital Assets",
   "year": "2021",
   "quote": "46% of service providers surveyed as discussed above reported not being insured against any risks.",
   "citation": "Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876"
  },
  {
   "id": "kaal:claim:4033886-031",
   "url": "https://wulfkaal.github.io/claims/4033886-031",
   "claim": "Because digital asset exchanges perform both the traditional broker dealer function and the custody function, they face uncertainties and increased liability that traditional exchanges, which never touch custody, do not bear.",
   "specific_name": "combined custody and brokerage role",
   "conditions": [
    "centralized digital asset exchanges holding customer assets"
   ],
   "source": "Digital Asset Valuation",
   "year": "2022",
   "quote": "By having the crypto exchange perform the services of a traditional broker/dealer and custody holder, digital asset exchanges face uncertainties and increased liability that do not impact traditional exchanges.124",
   "citation": "Wulf A. Kaal, Samuel Evans, Hayley Howe, Digital Asset Valuation (2022). SSRN: https://ssrn.com/abstract=4033886"
  }
 ]
}