If institutional finances are to get into the crypto room, private keys need custodians to keep investors safe, according to the accounting firm.Some suggest that bearish price moves are sometimes caused by hackers selling their stolen bitcoin, flooding the market and causing the price to crash. From Kuklos / Shutterstock.com
In order to attract institutional investors, the cryptocurrency market needs to develop safer means of storing digital assets, according to a report by KPMG. The accounting firm claimed that the private keys used to access users’ wallets pose a fundamental security flaw:
“Institutional investors in particular will not risk owning crypto assets if their value cannot be secured in the same way as cash, stocks and bonds.”
If you lose a wallet’s private key, its contents will become inaccessible. Many holders have lost millions of dollars worth of cryptocurrency after misplacing their keys. In one case, the death of the CEO of a Canadian exchange last year resulted in the loss of an estimated $ 145 million.
The KPMG report suggests that private keys be entrusted to institutional custodians to protect them on behalf of investors. This would potentially reassure some owners who are concerned about misplacement of their key. The solution offered, however, would arguably be a return to centralized authorities holding financial assets, as banks do with fiat currencies today.
This raises questions about the function of a cryptocurrency. It can be argued that a traditional private key safe is a more secure means of storing digital assets than entrusting it to a custodian. Bearer instruments such as cash, bonds and, more recently, cryptocurrencies belong to whoever physically owns the asset (or private key). It makes sense to use a custodian with cash – and not under the mattress – as this can lead to loss or theft. However, bearer notes and cryptocurrency keys can be worth a fortune and only require a secure location.
Hacks and private keys raise questions about long-term profitability
However, the problem presented in KPMG’s report is certainly worrying. As of 2017, hackers have stolen an estimated $ 9.8 billion, raising concerns about the long-term viability of the sector’s growth if a solution is not found. Using cold wallets that are not connected to the internet and spreading the inventory across numerous wallets could be a safer way to protect the investor’s assets from hackers by not putting all of the eggs (or coins) in one basket become.
But what about the assets that hackers have already stolen? In case of BitcoinThere is some speculation that bearish price movements are sometimes caused by hackers selling their stolen bitcoin, flooding the market and causing the price to crash, as some speculated in the Bitrue hack last year.
However, the exchange responded quickly to the Bitrue hack and provided security about how the crypto room will handle hacks in the future. Binance quickly developed an anti-fraud system, a measure that is only possible thanks to the blockchain that can identify and block the stolen bitcoin.
“With the proliferation of crypto assets,” said KPMG in their report, “custodians have tremendous profit opportunities – both by earning management fees for providing uncomplicated custodian services and by offering related services that are unique to the emerging crypto Ecosystem are possible. “
KPMG’s proposal might reassure some investors, but it will do little to entice those who are cautious about giving their private keys to third parties when they can take the chance to store their keys themselves.