In a Salt conference panel Wednesday on the opportunities and obstacles facing institutional crypto adoption, participants addressed common misconceptions surrounding crypto custody and investors’ fear of getting hacked or losing their investments.
The takeaway? Crypto custodians must provide the same types of institutional infrastructure that are available for any other asset classes. As institutional interest in crypto swells, the panel concluded, crypto exchanges and custody providers must address industry concerns about safe custody and fraud prevention.
The panel was part of the SALT conference — financier Anthony Scaramucci’s annual event covering finance, technology and geopolitics — being held this week in New York City.
“I am amazed all the time when I hear people talking about how they still believe you can’t track these transactions,” said panelist Jalak Jobanputra, founding partner for early stage venture capital firm Future\Perfect Ventures.
Most investors don’t understand public key cryptography, she said, which has kept digital assets on the blockchain secure all along. Public key is a method of encrypting data with a public and private key — or piece of information used for scrambling data making it harder to hack. Since the data is encrypted by two separate keys — the public and private — instead of a single shared one, it’s more secure.
So it’s up to the crypto custodians to promote that they can provide the same types of institutional infrastructure to custody crypto that are there for any other asset classes, said panelist Brett Tejpaul, head of institutional sales, trading, custody and prime services at Coinbase GLobal Inc.
“We built the platform to meet the rigorous due diligence requirements of institutional investors in the same way that they would undergo diligence of Goldman Sachs or JPMorgan, or others,” Tejpaul said. “If we can put crypto in a position relative to other financial assets, and evaluate its operational risk security and other elements of risk relative to financial assets, you’ll find that, actually, crypto, in many cases, is more secure.”
Glenn Barber, head of sales and business development at digital custodian Copper, said the confusion for institutions is in the messaging.
“Those new to crypto don’t realize that custodians have layered into their systems military-grade security and technology,” Barber said. “The base layer value proposition is simply how do I make sure that if I’m going to buy digital assets they’re stored in a place where I really don’t think they’re going to leave.”
Most institutions are still not willing to hold primary crypto assets, they gain passive exposure like how JPMorgan Chase & Co. announced in March the launch of a structured note offering tied to a basket of Bitcoin-friendly stocks.
“The big regulatory question is how do we actually open this up for real institutional participation in the underlying projects we’re all working on, that’s the heavy lift for the next year or two,” said panelist Brian Brooks, former acting Comptroller of the Currency and the former CEO of Binance.
“One of the things that we don’t do a great job as a community in conveying to the world is: ‘We’re new, so we seem risky,’ and we never asked the question: ‘Risky compared to what?’” Brooks said.
Brooks said he believes the thought of crypto being any riskier compared with things like the Equifax data breach or any cyber breaches are more like a state of mind.
“When people talk about crypto nobody talks about that, because those risks we believe are the state of nature,” Brooks said. “We need to start talking more about the problems we’re solving incrementally. There might be new risk, but on net, there’s probably less risk and that’s the story we don’t do a great job of telling, so we let the incumbents win the narrative, even though the less risky option is on the blockchain.”
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.