In a response to Cardi B’s query on whether crypto will replace the dollar, Twitter’s Jack Dorsey replied “Yes, Bitcoin will.” While Bitcoin has enjoyed a renaissance in 2021, there are still problems that the cryptocurrency must face before any such predictions can be made. One fintech CEO believes the greatest of which resides in the custody realm.
“Dorsey’s prediction may well run into a few problems. The first being that total Bitcoins are capped at 21 million, and, of that number, a fair amount have been lost forever. The second problem is that you’re talking about an asset which is mostly controlled by only a handful of whales. Both of those become problems when you’re theorizing that Bitcoin could usurp the place of the dollar as currency. Even Elon Musk alluded to these issues with Bitcoin in a recent exchange. But, beyond that, right now, there’s a custody issue that most people haven’t fully considered. Until we figure out custody, digital assets will not reach their full potential,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.
“Functionally, what happens to your digital assets after you buy them? Most investors don’t fully understand this piece. There’s the possibility for self-custody, which can be a challenge for investors without a great deal of technological understanding. It leads to lost assets. Not through malfeasance, but through simple incompetence. We’ve all heard the stories about the folks who stored their Bitcoin on a flash drive and, over the years, have thrown it away or lost it. Beyond self-custody, there is the option to leave them in your exchange or move them to a custodian. Institutional investors, and even most exchanges use some form of custody vendor. However the options on the table at the current time are not suitable for the kind of scope to which Dorsey alludes,” said Gardner.
“Consider that one of the leading providers of custody has been embroiled in a lawsuit which alleges that they are responsible for the loss of $70 million in digital assets. Imagine, if you will, that your city or provincial government simply lost $70 million. Can you imagine that? It is not acceptable. In order for digital assets to expand to take on a greater role in the financial world, the industry must solve its custody conundrum,” noted Gardner.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the industry’s most profitable digital asset exchanges, including a well-known multi-billion-dollar cryptocurrency exchange. Over the past twenty years, the company has built technology for the world’s most notable institutions, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
“I think that we’re likely to see custody addressed in 2022. One way or the other, as in the Jack Nicholson movie, something’s gotta give. In order for digital assets to truly expand and be more widely viable, firms with a security mindset must step up and provide a custody option which is safe and secure from both malfeasance and incompetence. Right now, that is lacking,” noted Gardner.
