Cashing in on Crypto – The Financial Stability Board maintained this month that the $133 billion stable coin market is only a small part of the global financial market. Stable coins are cryptocurrencies that attempt to peg their price to a fiat currency such as the US dollar in a 1:1 ratio.
The Financial Stability Board is a consortium advisory body that makes financial system recommendations on behalf of the G20. Its assessment of this “niche” market segment suggests that crypto has a long way to go before becoming truly mainstream, but there are clear signs that the tide is turning. [Cashing in on Crypto]
If further proof were required, regulators in both the United Kingdom and the United States have recently published guidance on cryptocurrencies for banks and financial institutions. According to the Sunday Times, the Bank of England intends to tighten regulations on cryptocurrency investment for institutions by 2022.
According to the report, cryptocurrency holdings by banks and other institutions do not currently pose a significant threat to traditional markets, but their current rate of growth may do so in the future. This regulation is likely to be good news for the industry because it will give banks confidence that they are operating within the Financial Conduct Authority’s (FCA) guidelines when providing trading and custodial services. [Cashing in on Crypto]
Across the Atlantic, the US Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a joint statement outlining how they will clarify the rules and regulations for banks and other traditional financial institutions over the next year. The rules will be designed to inform banks and institutions about what is legal, what should be regulated, and what is strictly prohibited.
Cyberattacks continue against the backdrop of increased regulation. BitMart is the most recent in a long line of exchanges to be hacked. A successful attack and subsequent hot wallet (private key) compromise cost the platform $196 million.
This type of attack, in which an attacker was able to steal the private key and use it to transfer funds to another wallet, is a common example of exchange compromise. For more information on how to deal with this type of threat, see my first cryptocurrency post: [Cashing in on Crypto]
In a subsequent successful attack, BadgerDAO (a decentralised payment platform) disclosed how it was compromised, losing $120 million. The path to compromise began with compromising Cloudflare’s management portal, BadgerDAO’s content delivery network.
Once Cloudflare had been compromised, the attackers were able to inject a malicious script into the Badger web app’s UI. This replaced the legitimate wallet’s destination address with the attackers’. The final stage of the attack involved prompting users to approve the foreign address.
The transparency displayed by BadgerDAO on how the attack was orchestrated and eventually mitigated is unusual in the world of cybersecurity, and it is hoped that this model will be adopted by more organisations so that everyone can benefit from the lessons learned. [Cashing in on Crypto]
The main takeaway from all of this is that the broader societal implications of institutional investment in cryptocurrencies necessitate far more deliberate cybersecurity approaches. Without it, existing financial systems are at risk.