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By Serra Wei, Founder & CEO — Aegis Custody
Navigating today’s cryptocurrency ecosystem requires dealing with two types of risk, the first of which is investment risk. To appreciate this, simply look at the price fluctuations for Bitcoin over the past six months. Many experts argue that crypto’s volatility and the investment risk it carries are part of its design and will never go away.
The second type of risk is security risk, stemming not from volatility in markets, but from insecurity in ecosystems. For crypto to continue to evolve, this risk must be addressed, meaning that creating secure crypto ecosystems is more important today than ever before.
US regulators continue to warn of threats
To understand the importance of secure ecosystems, one must understand that the next wave of crypto adoption involves institutions. The early phases of crypto have been driven by investor speculation. To mature, crypto must gain the trust of institutions.
Until this point, the majority of banks and other financial institutions have been little more than spectators when it comes to crypto. Recent reports, however, show that institutions are starting to gear up for deeper involvement in the crypto space.
As banks and other financial entities wade into crypto, their main concern is the potential for brand damage posed by the security risks that continue to mark the industry. The collapse of FTX in November 2022 didn’t help institutions’ concerns, while the saga of Silvergate — which was hit hard by the FTX collapse — showed how quickly things can go bad for institutions that bank on the success of crypto customers.
In the aftermath of FTX, US banking regulators issued a joint statement on the “crypto-asset” risks that banking organizations should carefully consider. The statement explained that regulators continue to be concerned about the ways “crypto-asset-related activities” pose a threat to consumer protection and compliance with applicable laws and regulations. It further warned that issuing or holding as a principal asset crypto that is “issued, stored, or transferred” on a “decentralized network” is “highly unlikely to be inconsistent with safe and sound banking practices.”
Non-US regulators push for adoption
In other countries, however, regulators have made it clear that now is the time for institutions to support the development of more secure ecosystems in the crypto space. In April 2023, Hong Kong Financial Secretary Paul Chan called on institutions to take a role in developing crypto and other Web3 technologies “with innovation and steadiness.” Chan acknowledged that “recent collapses of virtual assets exchanges” have led some to doubt the future of Web3. His feeling, however, is “this is in fact the best time to promote the development of Web3.”
Chan justified his statement by pointing back to the dot-com bubble in the early 2000s as an example of what may lie ahead. He argues that as the crypto space matures, those who remain will be like dot-com survivors who base their business on “technological innovation, practical application and value creation,” rather than speculation. Chan called upon institutions to contribute to the development of crypto and blockchain technology that delivers transparency, high efficiency, security, decentralization, de-platforming, and affordability.
China is not the only country to be encouraging a deeper dive into crypto development. El Salvador established itself as a global pioneer in the crypto space in 2021 when it recognized Bitcoin as legal tender. In June 2023 the Monetary Authority of Singapore proposed standards for digital assets that it hopes will encourage financial institutions to get more involved with crypto.
How institutions can respond
While some regulators are clearly more comfortable than others with ushering in the age of crypto, all agree on the importance of secure ecosystems. This means institutions that want to benefit from the features that blockchain brings to the world of finance must move now to develop higher security standards.
Those who take the lead in the crypto space will be those who are paying attention to security infrastructure, conducting security audits, and developing the staff needed to maintain comprehensive security solutions. The crypto industry cannot achieve its potential unless security risks are acknowledged and addressed.
Author Bio
— Serra Wei is the Founder and CEO of Aegis Custody and Aegis Trust. Aegis is a licensed and insured digital asset custodian. Aspiring to be the world’s leading digital asset custodian, Aegis provides institutional-grade custody to service clients all over the globe through Aegis Trust Company, a South Dakota trust charter in the US, and Aegis Custody, a trust company service provider in Hong Kong. Serra is a cryptocurrency finance executive, investor, and entrepreneur with a blend of experience in both legacy & blockchain-based finance and cryptocurrencies. Ms. Wei has worked with Goldman Sachs and Passport Capital on building investment strategies, structuring M&A deals, cryptocurrency trading, and custody solutions.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.