The Bank of New York Mellon Corporation (BNY Mellon) has launched an electronic platform that stores and protects cryptocurrencies, including bitcoin and ether.
The bank's new 238-year-old Digital Asset Custody platform now allows its US customers to store and transfer blockchain-based cryptocurrencies with the same safeguards the bank offers to protect traditional assets.
"By reaching more than 20% of investable assets globally, BNY Mellon has the scale to reinvent financial markets through blockchain technology and digital assets," BNY Mellon CEO Robin Vince said in a statement. of October 11. “We are excited to help drive the financial industry forward as we embark on the next chapter of our innovation journey.”
Digital asset platforms are designed to ensure the security of cryptocurrencies and tokens, the digital representations of a commodity or other physical asset. This is especially important given that cybercriminals have stolen more than €15 billion worth of crypto in the last eight years or so. And cryptocurrency theft has only increased since the COVID-19 pandemic hit in 2020.
BNY Mellon established its digital assets business unit in 2021 to develop services for digital assets; plans to launch the industry's first multi-asset platform that connects digital and traditional asset custody into one service.
BNY Mellon said it has worked with fintech companies, including Fireblocks and Chainalysis, to integrate their technology into the development of its digital asset platform "to ensure it meets current and future customer security and compliance needs in the security and compliance space." digital assets".
Avivah Litan, vice president and distinguished analyst at research firm Gartner, said the BNY Mellon announcement is significant because while the digital asset market is still unregulated, institutional investors will be much more aware of investing when an institution like BNY Mellon protects your funds. .
“I don't know what the liability provisions are if client funds are stolen, but I would imagine that BNY Mellon will have much more liability to its clients than most cryptocurrency exchanges,” Litan said.
BNY declined to comment on the decision, but cited a recent survey by Celent who sponsored; the survey of 271 institutional investors showed significant institutional demand for "resilient and scalable financial infrastructure designed to accommodate both traditional and digital assets."
The survey revealed that almost all respondents (91%) were interested in investing in tokenized products. At least 41% of institutional investors now hold crypto in their portfolios, and an additional 15% plan to own digital assets in the next two to five years.
BNY MellonDespite the clear interest, respondents also indicated that "some key conditions must be met" before their digital asset banking research becomes an actual investment. “The asset custody and management market is highly fragmented and evolving, and traditional businesses have significant opportunities as investors seek to eliminate uncertainty in a situation with many variables,” the study statement said.
Seventy percent of respondents indicated that they would increase their digital asset business if services such as custody and execution were available from reputable and trusted institutions.
The survey results, Litan said, are significant because they show demand in an area that "has barely scratched the surface and where there are tremendous opportunities to modernize our financial systems."
How Blockchain Builds Trust
Unlike traditional fiat currencies like the US dollar, which are issued by a central government authority, cryptocurrencies like bitcoin are based on a cryptographically controlled network (block chain) that is decentralized. In other words, it is not controlled by a single entity, such as a central bank. Cryptocurrencies have no intrinsic value; value is entirely based on what the market determines its value, much like precious metals whose value is based on available quantity and use cases.
Cryptocurrencies are built and traded on top of a public blockchain electronic ledger, similar to a relational database, that can be shared openly among disparate users. The blockchain ledger creates an immutable record of cryptocurrency transactions, each time-stamped and linked to the previous one. Each digital record or transaction in the feed is called a block (hence the name); allows an open or controlled set of users to participate in the e-book. Each block is linked to a specific participant.
The blockchain can only be updated by consensus among system participants, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of every transaction made on the system.
As a peer-to-peer network, combined with distributed timestamp servers, blockchain databases can be managed autonomously to exchange information between disparate parties. There is no need for an administrator because, in effect, the users of the blockchain are the administrators.
In the trust economy, the “identity” of an individual or entity confirms membership in a nation or community; ownership of goods; right to benefits or services; and, more fundamentally, as proof that the person or entity exists, according to Deloitte.
Blockchain does not simply solve the problems of data access or exchange; it also solves a trust problem.
In the peer-to-peer trust economy, an individual user, not a third party, will determine what digital information is stored on a blockchain and how that information will be used. Blockchain users will work to create a unique and versatile digital representation of themselves that can be managed and shared across organizational boundaries, according to research firm Deloitte LLP.
However, there are cryptocurrencies known as stablecoins, which are backed by fiat currency and have the same value as the currency behind them. Governments around the world are highly engaged in researching and piloting national digital currencies that would be equal in value to their currencies, including the US dollar. However, the United States remains far behind other countries in developing a national digital currency.
However, that could change soon. Over the past year, President Joe Biden and lawmakers have continued to push government agencies to develop and test a digital dollar. The electronic dollar, a virtual representation of a US dollar, would allow people to make payments using tokens on mobile phones or cash cards.
In addition, financial services companies have been developing their own fiat digital currencies and testing them as a way to enable cross-border financial transactions in near real time and without the high fees associated with financial networks like SWIFT.
For example, JP Morgan Chase launched in 2019 JPM Coin, the first stablecoin of its kind used to transfer funds on a centrally controlled or "permissioned" blockchain network. The network allows stablecoin (US dollar-based digital currency) transfers both internally and between institutional clients.
Caroline Butler, executive director of Custody Services at BNY Mellon, said the bank will continue to "innovate, embrace new technology and work closely with its clients to meet their evolving needs."
Copyright © 2022 IDG Communications, Inc.