Safe and secure crypto is closer than we think says Metallicus CEO
Blockchain is reinventing financial services, with digital assets and “programmable money” innovations offering real utility and new approaches to reducing systemic risk. But customers have lost billions of dollars to cyber hacking, fraud and unregulated products – and if we can’t trust it, we won’t scale it. It is time to plug security into this new system.
As Congress explores legislation to pave the way for stablecoins and cryptocurrencies, we have an opportunity to design a future that allows us to reap the benefits of blockchain while minimizing the risks. The transparency, security and verified identity enabled by blockchain offers a more effective model for protection against bad actors than centralized legacy anti-money laundering (AML) and “know your customer” (KYC) approaches used by banks and regulators. That said, we will only build trust if we remove pain points and obstacles to making digital assets more secure, scalable and useful.
The crypto market today is an archipelago of blockchains, coins and tokens crossed by a flotilla of centralized exchanges, digital wallets and bridges between different blockchains. And it’s easy to get lost at sea because, let’s face it, the user experience is subpar, and the industry has been hampered by security breaches and weak customer protections.
Even the most popular cryptocurrencies are hampered by silos that hackers exploit to steal customer funds. Bitcoin and Ethereum, for example, don’t really talk to each other: Ethereum’s innovation of smart contracts is not compatible with Bitcoin’s system, and the most widespread solutions to bring them together are clumsy and risky. Cross-chain bridges to move coins and tokens around are the Achilles heel of blockchain, with $2 billion stolen from customers through cyberattacks this year alone.
The demise of cryptolender Celsius, TerraLuna’s algorithmic “stablecoin” and other multi-billion dollar failures are the beginning of the end of poorly managed, unregulated crypto platforms. The lack of transparency surrounding Tether’s reserves and questions about the ability of its USDT stablecoin to maintain a fixed dollar value at all times represent a stark example of the need for consumer protection. Imagine a money market fund with no regulatory restrictions on which assets it invests in to maintain its value. The volatility will be dramatic, and that is what we have seen with unregulated stablecoins.
Compliance is not the only obstacle for blockchains to gain acceptance. Some have exorbitant “gas fees” to use their networks and also produce large carbon footprints. This is why Ethereum developed a long and difficult “Merge” to build a future of money that is more environmentally sustainable.
To create a safe space for digital assets, one trusted by banks, businesses, consumers and regulators, we need more than legislation with clear rules and guardrails. Here are three technologies we can use to strengthen the system now or in the near future:
A reliable tick that confirms you are who you say you are. Innovations in decentralized identity pave the way for engagement with crypto and regulated financial activities without having to share personal data with the entire world. A check mark that verifies your identity is a simple, effective regulatory compliance solution that can also help expand access to economic opportunity for millions of people who lack other forms of ID (a problem both in the US and around the world).
Unhackable bridges to protect consumers and the environment. The ability of criminals to steal assets and the ability of foreign governments to wreak havoc should be cause for concern. Unhackable bridges using new modes of IntraBlockchain communication allow popular cryptocurrencies to talk to each other securely. They can also serve to migrate Bitcoin, Dogecoin and other energy-intensive cryptocurrencies to environmentally friendly blockchains much faster and more efficiently than Ethereum “Merge.”
An end to unwieldy passwords and fear of losing crypto. Customers have lost billions of dollars worth of crypto assets because they lost the keys to their accounts. Signing up for a fintech platform should be as easy as FaceID. Biometric recovery will also eliminate the fear of losing your crypto, and increase institutional and public confidence in consumer protection for cryptocurrency holders.
Creating a better and safer system is essential as banks, payment platforms and digital assets become intertwined and crypto and Web3 meet regulated financial institutions. The solutions are available to build a financial system everyone can trust – and a future of crypto that is secure and compliant.
Marshall Hayner is the co-founder of Metallicus, a San Francisco-based digital asset and blockchain technology firm @WeAreMetallicus.
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