At the end of last week, the US Securities and Exchange Commission (SEC) received a letter authored by experts in the cryptocurrency and financial sector. Among them are Bitcoin Core developer Brian Bishop and former managing director of the Morgan Stanley banking holding company Caitlin Long. Together, they sound the alarm and warn about the consequences of the wrong approach and corporate adoption of cryptocurrency for the technology itself.
In a letter published at the end of last week, specialists in the cryptocurrency and financial sector drew special attention to the new integrated platform for digital assets Bakkt, which is planned to be launched in November. The letter warns on the operating principles on which the platform is based.
The letter's authors warn that banks' traditional practice of holding clients' assets in a single account will undermine some of the core benefits of cryptocurrency.
By accumulating client funds in a single account and using them for investment or lending, a process known as "mixing" threatens to violate trust and devalue crypto assets by creating liquidity not backed by the existing assets of individual depositors.
In addition, cryptoassets are essentially a bearer instrument - which is stored only in virtual form. As a result, the concentration of such assets from multiple owners into a single wallet makes it a sweet spot for hackers, making it easier for them to break in.
Magnifying these challenges are new developments by another institutional bank, Citigroup, which this month announced it had found a cryptocurrency custody solution that would rely on receiving digital assets from depositors to give investors the ability to gain access to crypto assets without actually owning them.
Despite the skepticism of banks regarding cryptocurrencies, almost every financial sector enterprise decides to find a way to enter the new crypto market. Financial institutions are striving to use traditional, proven business tools for crypto assets.
On the other hand, the authors note that today's attempts to regulate the industry do not take into account either the specifics of its technology or the risks of managing digital assets, trying to squeeze new technology into the Procrustean bed of old rules.
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