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If you are going to hold or trade digital assets, security is key. Different kinds of digital assets may have different security needs, and it takes a lot of effort from both users - through education and constant vigilance - and creators in the industry to keep everyone safe.
Here are some of the ways in which digital asset security has been evolving in recent months.
Regulation
Regulation is becoming the key topic in the worlds of crypto, blockchain, and NFTs. With the European Union’s Markets in Crypto Assets regulation now beginning to be released, digital assets are being regulated more than ever before in the EU. A similar story can be seen across the world, whether it’s in Asia with the Japanese Payment Services Act or in the Gulf countries with regulatory frameworks developed across multiple countries in the region. Regulation is there to keep users safe, as well as to begin to structure industries that have historically been very unregulated legally.
Technology developments
New technology is being developed to help keep digital assets more secure than ever before. Zero-knowledge proofs (ZKPs), for example, are a cryptographic method that allows one party to prove to another that a statement is true, without sharing any information except that they can validate the statement. This means that no data is ‘seen’ during the transaction, and the validity of the statement depends on the validity of the prover. ZKPS can be used to create private transactions on the blockchain, i.e. untraceable back to crypto wallets with real-world identities attached. They also allow for decentralized identity, where no one needs to ‘see’ identity information for AML or KYC purposes to confirm they are valid, just that they are valid.
Integration with financial institutions
Existing financial institutions are increasingly exploring the world of blockchain and digital assets. With this involvement comes an increased integration and greater security measures brought over from institutional products - but also more money in security and risk management innovation. To offer digital assets to their existing customers, incumbents must prioritize safety more so than individual crypto startups, for example. Banks and government financial institutions must ensure that they are protected from reputational and risk disasters, which increases safety overall across the digital asset landscape.
AI and machine learning
Artificial intelligence and machine learning are having a significant impact on safety and security of digital assets. Machine learning algorithms are being used for security risks such as anomaly detection, meaning that any anomalies can be detected immediately and fraud and loss of data can be avoided. AI is also being used in threat intelligence and to understand transaction patterns, which also helps to identify anomalies that could be fraud, and to give accurate risk assessments for transactions before they are even made. AI and machine learning are integral to keeping the ever-expanding blockchain ecosystem, and the digital assets moving through it, safe.
Stricter protocols
Anti-money laundering and Know Your Customer protocols are becoming more consistent and more sophisticated. Combined with technologies such as ZKPs mentioned above, it is now becoming more possible to confirm your identity without having to share private information. With regulations such as MiCA coming into force, it is now harder for crypto companies or NFT wallets, for example, to be set up without some form of AML protocol. This has angered many who want to remain anonymous in the world of digital assets, but from that anger has come innovation in providing this real-world track and tracing with greater data privacy and transparency. This will be a difficult line for the industry to walk, and may drive users in the space underground to try to avoid these more common, stricter protocols. This will have a significant impact on safety in the industry in the coming years.
Are digital assets the safest they’ve ever been?
As government regulation has increased, and the number of people interested in digital assets has exploded, the industry finds itself having to be more and more aware of the safety risks involved in providing this technology to users. The risks are greater for everyone in an unregulated market, but that does not mean that everyone in the market wants to see those strong layers of protection erode important values such as privacy and anonymity. It is not, however, something that anyone in the digital asset landscape can ignore. It is now more possible to easily provide effective security measures for consumers, and allow them to make their own decisions as to how they want to keep their assets safe. This, combined with greater user education that can help them spot fraud and scams, digital assets will become safer and safer. There is, however, still a lot to do to ensure that the industry is safe, and it will likely never be fool-proof, just as in traditional finance. However, unlike traditional finance, digital assets look set to become ‘safer’ quicker, more efficiently, and with more control and autonomy in the hands of the users themselves.
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