Alexander S. Blum, CEO of Atomic Capital, recently published a piece on why digital custody for securities as it exists today is actually a bloated, overly-expensive obstacle for the cryptocurrency space.
Custodial concerns for cryptocurrencies have always been a pressing concern. After all, how will institutional players be able to securely store their digital assets otherwise? The immediate solution for many in the space today seems to be institutional custodial services: in other words, companies that specialize in storing your crypto securely in their own vault, for a fee.
Alexander S. Blum, CEO of Atomic Capital, has an altogether different idea however. In a piece he authored recently called “Digital Custody for Securities Is Bogus,” he makes the case that today’s solutions are obscure, far too expensive, and actually create more barriers to entry than they are meant to resolve. In order for digital securities to become the “new normal,” the current custody options realistically provide no real path forward.
“The Most Overpriced USB Stick Ever Created”
The solutions to the custody question, as Blum writes, mostly revolves around “cold storage encryption with other intensive security measures with obscure and important-sounding names.” Instead, “They only replicate existing forms of legally-mandated custody.”
“Ultimately these solutions do not fully leverage the infrastructure that a DLT architecture and “token” economy uniquely allow. Instead, they sell what amounts to the most highly secure, hyper-marketed, and overpriced USB stick ever created.”
Custodial services are, in fact, nothing new to the financial world. Therefore, applying custodial services to cryptocurrency is forcing an old model of finance onto this new frontier. Just consider, for example, that the four largest custody banks alone hold about $114 trillion in assets. What these institutions want is more crypto-assets in custodial services, and emergent custodial services want to simply replicate the success of financial capital. They ultimately offer nothing new to the table. In fact, they may even be holding us back.
Given that current custodial services have grown into an “increasingly byzantine and moribund knot” prone to fraud and abuse, do we really need to recreate this for the cryptocurrency market? This is the question Blum asks us.
The bottom line when it comes to digital securities is that: “On a technical level, digital securities do not need these excessive technology protections, salespeople do.”
You can read Alexander Blum’s full article here, it’s worth a read.
Of course, the security token space has more problems to resolve than just a mere custody problem. Its more pressing concern is a potential capital crunch it may soon experience despite its strong fundamentals.
What do you think about Blum’s remarks? Are today’s custoridal services simply glorified, over-expensive USBs? Let us know your thoughts in the comments.
Image courtesy of Medium.