Bitcoin’s rise persists with prospect of tighter regulation due to security risks
The rise of cryptocurrency appears to be irrepressible. It has become the third largest payment system in the world with Bitcoin breaking through the USD 20,000 level for the first time. The future certainly looks bright for crypto with more and more organisations accepting digital currency in their transactions.
However, cryptocurrency exchanges are increasingly becoming a prime target for security breaches, with hacking incidents such as the one which hit the major cryptocurrency exchange, KuCoin, in September 2020. Exposing a lack of basic safeguards, the KuCoin attack saw USD 150 million worth of Bitcoin and other cryptocurrency tokens compromised after hackers found the full private keys to the Singapore-based exchange’s hot wallets.
The incident is a wake-up call for the industry. If it fails to self-manage and protect assets effectively, greater, and more restrictive regulation seems inevitable. This situation poses a challenge for wider adoption among larger institutions and banks with strict views on risk and compliance. To avoid becoming overregulated, a pre-emptive, rigorous security strategy will be necessary to keep hackers at bay.
Tackling security the right way
Incidents such as KuCoin should be simple to avoid and it should be widely understood that full cryptographic keys should never again be kept in one place. Unfortunately, while entrepreneurs are great at knowing how to build companies, all too many don’t necessarily think about how to protect assets from a security point of view. To tackle security properly it is necessary to hire the right people.
As businesses grow and start to manage more assets and can afford full-time security staff, they should begin to rely on professionals to secure their infrastructure for them, either in-house or externally. Often the problems arise when entrepreneurs misguidedly believe they have enough knowledge to do the security on their own.
The advance of MPC
As the industry continues to evolve from the speculative phase into a new generation, the game is set to change significantly with security taking a more central position. Parallel to this, it is important that financial institutions work to raise confidence in crypto as a reliable way to transfer value.
The time has come for the industry to improve in this area and set a better precedent before it ends up becoming over regulated. With new investors joining the market with a very different mindset on risk factors, they are going to vote with their money and will chose to invest in firms that can demonstrate regulatory compliance or have a framework to demonstrate they are doing what is necessary to secure their investments.
Technology solutions are available to deal with security of assets and for any licensed or unlicensed financial institution there should be a long-term strategy to invest in these types of solutions so that they can give confidence to market participants and elevate the industry as a whole. One such solution is multi-party computation (MPC), a cryptographic protocol that distributes computation across multiple parties and no individual can see the other parties’ secrets. MPC never keeps keys in one place and offers strong cryptographic key protection capabilities in pure software, allowing organisations to perform calculations on encrypted data without unencrypting it.
MPC has so many potential use cases that an entire organisation has been founded around it, The MPC Alliance, co-founded by Unbound Technology and Frank Weiner, Sepior, brings the industry together and raises awareness. Since its launch in November 2019, its membership has tripled and major global companies are getting involved. With more vendors offering MPC-based wallets and the market becoming much more aware of it, the conversation around MPC will continue over the coming months.
Safeguarding the industry’s future
It will certainly be a challenge to persuade firms to make some major changes in order to achieve incremental improvements in their data security. However, this task is made easier because along with being an enhanced platform for operational security, MPC is a superior operation framework which can provide enough cost savings to pay for itself.
As the benefits of MPC become more widely known, an increasing number of businesses will harness its flexibility and agility to support their own evolution and help to safeguard the future of the rapidly changing crypto currency market.
About Marcella Arthur:
Marcella Arthur is VP, Global Marketing at Unbound Technology. At the heart of Unbound lie sophisticated applications of Multi-Party Computation (MPC), developed by Unbound’s co-founders, Professor Yehuda Lindell and Professor Nigel Smart, world-renowned cryptographers. MPC offers a mathematical guarantee of security that fortifies Unbound’s disruptive technology. For the first time, trust-contingent operations are enabled anywhere, reaching far beyond the boundaries of physical infrastructure.
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