Earlier this month, a webinar between Unbound, METACO and The Fintech Times focused on crypto custody and the adoption of digital assets in the institutional sector.
It included discussion on the development of infrastructure in cryptography security and was hosted by Mark Walker, Editorial Director at The Fintech Times, where he began by saying:
“In an increasingly digital world we now have vast amounts of mission-critical data, the financial sector, in particular, have a responsibility to protect all forms of the exchanges and assets. Looking at the chain of custody is a particularly crucial and mandatory requirement for real digital piece of mind.”
To tackle the issues of digital safety, he was joined by both Adrien Treccani: CEO and founder at METACO, the foundation for better, safer, faster digital assets and Rebecca Aspler, Director, Product Management at Unbound – an institutional digital asset security platform.
Beginning his presentation, Adrien addressed the four pillars of the current landscape when it comes to the democratisation of cryptocurrencies and digital assets, highlighting that perhaps the opportunity is now for crypto is becoming a core institutional offering. He explained that:
- Central Bank Digital Currencies (CBDCs) are being tested
- Regulatory barriers are being lifted
- Technology is maturing
- There is a growing institutional and customer demand
He added, “Now that these four pillars are gathered, there is a very strong opportunity for banks to leverage this new ecosystem and get active in this field.”
His presentation explained that we have now ventured passed the hype cycle. After all, Bitcoin launched 12-years ago and since then we’ve since an incredible bubble of expectations and opportunity. In 2020 Fidelity announced its own Bitcoin Fund and digital asset custody services, and the OCC announced that chartered banks can act as custodians. It shows that the ecosystem has come a long way since Silk Road, the bitcoin dominated marketplace, was shut down by the FBI in 2014.
Adrien explained that we’re seeing a jump from the pioneer stage of cryptocurrency, which lasted 2-3 years, into an emerging demand business model (with input from Standard Chartered, J.P. Morgan, PayPal and more) to an institutional fear of missing out. He believes that 2021 will certainly see more big names enter the space. Moreover, the Bitcoin market cap is now more than $250bn, compared to $20bn for Stablecoins and $110bn for Decentralised Finance – DeFi. But still, it is a tiny player compared to banks and financial institutions.
Capital Markets currently represent more than $300tr in terms of market place, but could soon be replaced with other opportunities. Adrien said, “DeFi for instance is promising to replace lots of highly centralised and very inter-bank services that we rely on today. A potential universe of other assets. Derivative contracts, trade finance, payments, we can replace all of that, relying on the chain with open product calls and tools to replace some of the activities that banks do today.
“It’s a future world not just where cryptocurrencies are not just relevant but where every non-bankable asset has a presence on the chain, every contract relation is expressed as a smart contract, and for all of these applications which amount to hundreds of trillions of dollars, you can have the appropriate services provided by trusted partners on the market today.”
Still, there are objections to this brave new world. Adrien outlined three of the main objections when asked, “Why should I start with crypto today?” He explained:
This used to be the case five-years ago when clients would ask if their compliance department would be on board if it would affect their AML controls. Today, all of these rules exist to make sure the risk related to managing these assets is as low as it is with cash or any other securities on the market.
It’s true that in the last 5-years many exchanges have had security failures. But widely this is not a concern anymore, tech is matured, well-mastered and running in conjunction with many large banks. There is always a risk with new technology but this is well-identified and under control which means the potential upsides overtake the risks.
There is not much to do but wait as regulatory barriers continue to fall around the world. Countries who have been open to financial innovation historically are now exploring the advantages and clarifying frameworks e.g. Germany, Switzerland, Singapore, and some US states.
METACO itself runs SILO which allows banks to leverage a secure system to interact with cryptocurrencies and smart contracts. While this starts with simple use cases such as custody, it can also handle other use cases such as payment transfers and smart contracts in four clear objectives: Control, Custody, Tokenize and Connect (where the infrastructure is leveraged to interact with third-party providers).
The team at METACO have together developed a partnership with Unbound, as cryptographic innovation has delivered different ways of storing data. While maintaining hardware is costly, and needs specialist employees, thanks to mathematical innovation there is now the option of multi-party computation (MPC) which Unbound offer. MPC can maintain keys in the cloud, yet is still secure as the key itself is divided into multiple shares but allows the user to sign and authorise without joining the fragments. To break an MPC you have to then break multiple layers, which is very difficult to do.
Rebecca Aspler, Director, Product Management at Unbound – an institutional digital asset security platform went onto explain more in her presentation.
Unbound delivers secure, scalable and agile cryptography designed for the digital business, developed by world-renowned scientists in the field of multiparty computation. It is led by CEO Prof. Yehuda Lindell and co-founder Prof. Nigel Smart. She highlighted that a mathematical breakthrough by the pair occurred which took the computing time of MPC from nine minutes to just milliseconds.
There are different types of MPC:
- Server to server (as with the METICO partnership)
- Server to endpoint
- Server to multiple endpoints
And Unbound leads with a pure software approach where they ensure that:
- The key is split into different random shares
- They can be placed on any hardware
- Key shares are never brought together
- Shares are refreshed continuously
MPC as a stand-alone is a sub-field of cryptography but it does come with a mathematically proven security guarantee and its recent protocol optimisations enable commercial use.
After Rebecca’s presentation, the panel took questions from the audience, but the main questions were about regulation. Tackling the topic Rebecca said:
“We serve businesses and so we’re very much respectful of the pace that enterprises and institutions are taking when servicing their customers. It’s a matter of trust. For us to be able to serve banks in a very responsible type of way, assuming that regulations are there to serve these audiences, we’re very much honoured to be able to be trusted both by investors and institutions to supply solutions that are going through any type of testing or academia reviews.”
She ended by saying, “We’re all very responsible people. And we trust the regulators to do their own comparisons.”
You can still view the full webinar online: Unbound – Financial Asset Management Webinar.