In this paper, Alexandre Kech, founder and CEO of OnChain Custodian, exclusively contributed to PANews. He believes that independent third-party hosting fills the gaps in the industry and solves the potential conflicts of interest in the industry's mixed operations. The existing regulatory framework does not apply to the custody of cryptographic assets. In addition to regulatory licensing, industry technology standardization is also urgently needed to be resolved by the industry.
The following is the full text, PANews compile without changing the original intention
Encrypted assets and the blockchain industry have brought about change in society. Many people believe that this innovative technology will bring the Internet into the era of web 3.0. In the web 3.0 era, the current platform will evolve, allowing uncontroversial and transparent value transfer between individuals and businesses without the need for unnecessary intermediaries.
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The change in web 3.0 will enable people without bank accounts to access financial products as well, and the simplest operation is to transfer money at a cheaper fee. By substituting rights and decentralizing ownership on the blockchain, the blockchain also gives people access to traditional investment products that are only available to a small number of niche market investors, such as real estate, high-end art and private equity.
The industry is still in its infancy, technology is yet to mature, and regulation is still unclear. Since the back end is running on the blockchain, it is tokenized, the user can't see it, or even it can be said that it is not related to the user, and many problems still need to be solved.
Perhaps the biggest challenge comes from the security considerations of holding digital assets. Hold a public key (similar to the bank account where you can save money) and a private key (equivalent to your bank account password) to own and acquire other assets in the encrypted asset and blockchain ecosystem.
Public and private keys have become a feature of cryptographic assets on blockchains and are an important part of the technology. In simple terms, these keys prove the uniqueness and ownership of assets in the blockchain. Without it, the blockchain is just a distributed database.
And the challenge comes along. If someone masters these two "keys," he has the corresponding assets and you will lose ownership. This is what happens when a digital asset exchange is "hacked." When an investor loses a key, no one can reset the password or restore access because there is no central authority to manage the blockchain.
The solution is simple – an independent escrow agency.
Conflict of interest in industry mixed operation
Third-party escrow institutions are neutral institutions that independently protect digital assets based on investor requirements. These investors are usually institutional investors and licensed investors who hold large amounts of digital assets. Third-party digital asset custodians appeared relatively late, and the earliest established companies only had a few years of history. They fill the gap that hinders the crypto-asset industry from becoming a mainstream industry.
Third-party hosting organizations are committed to and focused on the network security of managed assets. They use all resources, including financial and human resources, to protect blockchain assets. Because of their focus on security, hosting organizations such as Onchain Custodian (ONC) are safer than exchanges, funds or large companies entering the crypto asset industry for the first time.
Third party escrow institutions are neutral. They are hosted by the customer and are not associated with any other business activity (such as trading or market making). This prevents potential conflicts of interest, and today's encryption industry is being ruined by this conflict of interest.
How many transactions are mixed operations? They also provide hosting, market-making and over-the-counter trading services. According to the traditional capital market industry rules, where is the correct separation of duties? How many fund managers are also consultants, market makers, over-the-counter brokers and plan to launch their own exchanges? How do their customers determine that they will not offer privilege to customers who purchase their consulting services in over-the-counter transactions than those who only use trading services? The industry may be in trouble because there is no clear core business and a spirit of dedication.
Most hosting organizations are committed to hosting business. Customers also receive value-added services from their customers and the services provided by their partners. At least in Onchain Custodian (ONC), neutrality and integrity are part of our DNA, and all participants in the hosting industry should do the same.
Code of conduct, standards and regulation
Industry participants should work together to fill gaps in integrity and regulation by developing a code of conduct. For example, Global Digital Finance (GDF) issued a code of conduct designed to pass industry autonomy and actively influence regulators to ensure that regulators adopt rules that are appropriate for our industry, rather than blindly copying current banks and capital markets. Regulatory framework.
Technical standardization is also the subject of ongoing research, that is, regardless of the custodian institution, the way in which the API is accessed by the escrow institution should be similar. Should securities-based issuances (STOs) and smart contracts that support them be vastly different between different blockchains or different platforms? There is definitely room for coordination on these issues, but the involvement of the custodian is also very important. To this end, ONC joined GDF (I am also co-chair of the hosting industry), ISO and other industry organizations.
On the other hand, regulators have so far barely been involved in the digital asset custody industry. Some countries, such as Japan and Indonesia, require exchanges and asset managers to use third-party custody services, but this tends to fall into the existing custody framework, which is not necessarily suitable for the digital asset industry and does not necessarily conform to the characteristics of digital assets.
A clear understanding of the regulatory stance of each jurisdiction is critical for third-party custodians to plan their business growth and coverage. Take Singapore, where NGC is located, for example. Local companies are currently welcoming crypto assets companies. They are adopting a wait-and-see attitude toward digital assets and utility tokens, leaving the industry unregulated now, which means that custodians do not need license licenses. The Monetary Authority of Singapore (MAS) also clearly stated its position on securities-type tokens, indicating that they apply to the Securities and Futures Act, which means that the custodian needs to obtain a capital market service license.
Third-party escrow agencies aim to protect customers' digital assets and give customers peace of mind. Customers can access different blockchain token agreements through a single window, as well as services provided by our partners, such as borrowing and over-the-counter trading. Third-party hosting reduces the risk of encrypting assets on the exchange, reducing the operational and technical burden on all participants and reducing the cost of self-storage. Provide users with complex private key management services that bring security, trust and transparency to the entire ecosystem.
PANews Contributing Author | Alexandre Kech
Compilation | Keira Edit | Tong