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The Future of Digital Asset Custody: Adoption Rising Albeit Growing Regulatory Concerns

Late June, Deutsche Börse Group announced that it had agreed to buy a two-thirds stake in Swiss-based Crypto Finance AG for more than US$108.6 million. The move signals development in Germany’s nascent cryptocurrency asset class by offering custodial and other crypto-related services to institutional and enterprise clients.

The continued widespread adoption of digital currencies globally indicates a shift in the financial sector’s acceptance of blockchain technology. Since 2017, the crypto and blockchain sector has attracted nearly $19.4 billion globally according to Crunchbase – a big jump since 2015. 

In addition, an expanding number of retailers around the world now accept a range of cryptocurrencies from Bitcoin to USDC. Even Crypto ATMs are starting to make an appearance, becoming more accessible to the general public in the United States.

US financial institutions have already come a long way to making digital currencies part of their financial offerings. Both banks and private fintech companies have made their own headway, launching pilot programs for digital currencies such as stable coins and exploring the use of CBDCs. 

In an added effort, cryptocurrency startups are also making efforts to further develop the process of finding, buying, and trading digital currencies easier with the hopes of driving greater consumer adoption. 

But the sector also faces continued opportunities and challenges going forward, including new regulatory pressures from governments around the world. Just recently, China’s government stepped up efforts to rein in cryptocurrencies by reportedly ordering cryptocurrency miners to shut down operations. 

Globally, increased regulations proposed that would limit the use of cryptocurrencies have gained steam since the start of 2021. Among them is an announcement made in May by The U.S. Department of the Treasury stating that it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service (IRS) as part of its ongoing effort to fight tax evasion schemes. And even more regulation may be coming for the crypto-world. 

In April 2021, the Ransomware Task Force published an 81-page report with best practice recommendations for how governments around the world can work to protect against and cope with attacks from ransomware. The group is a private-public partnership created by the Institute for Security and Technology who is now urging governments to expand traditional financial regulatory practices to include popular cryptocurrencies. 

This includes guidelines for adhering to compliance processes such as Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating Financing of Terrorism (CFT) which would impact crypto exchanges, kiosks, and over-the-counter trading desks. 

Meanwhile, calls to ban Bitcoin altogether have been growing as a proposed wide-net tactic to curbing ransomware attacks and crypto extortion schemes. For now, they have been quieted in large part by the currency’s gradual acceptance within the institutional financial industry.

As the digital asset space continues to develop, consumer adoption of cryptocurrencies will continue to grow well past 2021. What’s become clear though, is that there are still existing concerns among both regulators, investors, and security experts when it comes to the development and use of cryptocurrencies and digital asset custody. 

They include their ongoing cyber risks, propensity for volatility, and popularity of use among dark web criminals in extortion schemes. Many financial and security experts believe that if remained unaddressed, these kinds of concerns will only work to hinder the growth and adoption of an emerging industry.

While a shroud of uncertainty still hangs over the future of digital currencies, each year the presence of cryptocurrencies can be felt more in our day-to-day landscape. From digital wallets to crypto trading, new services are on the rise and traditional financial institutions want to get in on a piece of the pie too.

While the adoption is slow, it won’t be long before the consumer world realizes the many beneficial use cases for crypto’s blockchain technology - including its stability, transparency, and simplicity. For many, the hope is that trust will grow and that with the help of regulators and financial experts, the use and adoption of cryptocurrencies will only continue to develop beyond what we’ve already achieved.

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Banks and other financial organizations can greatly benefit from the right HSM which should be built for sensitive and complex applications and approval flows. With HUB Security’s Confidential computing HSM platform, organizations can now secure any type of sensitive business flow with end-to-end security. 

Built for complex enterprise authorization flows and approved for FIPS-Level 3, HUB Security’s mini HSM enables digital custodians ultra-secure and fully remote access to an on-prem or cloud-based vault for quick and easy and easy approval requests.