The introduction of digital assets into legacy systems is very fast. The digital real estate storage industry experienced a welcome development in mid-year when the Office of the Comptroller of the Currency officially announced that all nationally accredited banks in the United States could offer cryptocurrency custody services.
While this move is positive for the ecosystem, it has yet to be combined with an accurate assessment of its technology infrastructure, such as asking where are these newly acquired digital assets stored?
One thing is clear: we have entered a new financing paradigm that requires a different approach to asset protection.
Digital assets offer great potential for enrichment, but property managers have a responsibility to ensure that their clients do not become another figure in the global cryptocurrency attacks, which reached $ 1.4 billion in June this year.
According to the Financial Task Force’s annual report, the lack of infrastructure in the industry limits compliance and safekeeping of assets. As traditional financial markets begin to explore space, they must develop robust and adaptable technical solutions with the power of an ancient system.
The presence of cryptocurrency in banks is a positive step in the maturity of digital assets
When the first deputy commissioner said in a letter that banks might have encryption keys, it became clear that the banks were being careful. This is a great sign that the industry is becoming more mature and its assets are better understood and used. The OCC solution will increase the confidence and development of regulatory bodies in the industry.
This move provides banks with a unique opportunity to dramatically increase wealth opportunities for millions of people around the world by preserving digital assets. This can improve access to financial services or prevent a collapse of the national economy.
But they have to do it right; They need to understand how to effectively manage risk, how to comply with local and international laws, and how to take responsibility for clients’ assets.
Traditional banks are fast ponies and should invest in telegraph lines
The history of traditional banks and new digital asset providers in financial technology can be compared to the old history of Western Union and Pony Express. In the wild west of the United States, messages were sent by express ponies from one equestrian station to another. Knights carried messages on horseback for thousands of miles and carried messages from coast to coast. When Western Union arrived and installed the telegraph poles, the fast pony was suddenly out of date.
The traditional economic system and the new economic system will operate in parallel, but with two different systems open at the same time. We will continue to pay and the investment will remain an investment. But the overall infrastructure they work with will be very different, such as horse-drawn carriages and cars.
Technology can be disrupted in a quick and transformative way – and banks need the right direction. This is a critical moment for financial technology players to grow and steer banks in the right direction on their digital assets.
The economy of the future is growing rapidly, and if banks do not use the right guarantees and regulatory mechanisms, assets are at significant risk.
In the new financing model, banks must understand the new requirements
The first challenge for banks is to understand how the new industry works. They need to understand the implementation of nuclear exchanges and the development of smart contracts. This technology does not fit well with traditional space.
We expect that there will be a parallel system in which players will use infrastructure that works in a completely different way than traditional payment networks or settlement flows. There are many counterparties in the middle of these systems and this is a status quo that will not change. Thus, the only option for banks is to embrace these new technologies.
If banks move too fast to take advantage of the thriving space and do not provide adequate guarantees, they may fail. The reputation of potential digital assets will be undermined, and the livelihoods of millions of people converting fiat currencies could be lost.
The biggest asset loss in the new digital economy world is the theft of encrypted access to keys. Parents must learn to better protect them from cyberattacks, which have increased by 75% during the coronavirus outbreak.
Many banks have yet to find ways to offer cost-effective services and protect themselves from such attacks. They should also understand that digital securities are different from traditional securities in that they basically represent a representation of value, contractual rights, or physical assets.
Digital assets are full of risks if they are not settled and qualified custodians will eliminate the risk of counterparties not processing a transaction.