Consumer protection should be key in digital asset projects

SINGAPORE — Banks should prioritize client safety as they embark on digital asset experiments, mentioned Umar Farooq, chief government officer of JPMorgan’s blockchain unit Onyx.

Many blockchain tasks and different crypto protocols have the potential to make monetary providers extra environment friendly, accessible and inexpensive. However with out correct precautions, they might additionally expose prospects to cybersecurity dangers.

In latest months, many crypto buyers have been struck by hacks and scams. For instance, crypto alternate Binance was hit by a $570 million hack in October and Deribit misplaced $28 million in a scorching pockets hack this month.

“What a financial institution must do from a regulatory standpoint and buyer’s standpoint is that we have to defend our prospects. We can not lose their cash,” Farooq mentioned throughout a panel on the Singapore Fintech Competition 2022 on Wedneday.

“I do assume you want some kind of identification resolution or know-your-customer resolution which verifies who the human being that’s interacting is and what they’re allowed to do. As a result of with out that, in the long run, it simply would not work,” he added in an interview with CNBC.

Farooq defined that JPMorgan is utilizing an answer referred to as verifiable credentials that dwell within the buyer’s blockchain pockets. When the client goes to a protocol to commerce, the protocol validates the credential.

“I can not foresee folks having the ability to ship cash throughout borders if nobody checks and nobody is aware of who’s sending cash to who, as a result of in the end they are going to be in a cash laundering incident,” mentioned Farooq. 

“So these are the very elementary issues that should be addressed earlier than you even get to systematic points. Training, safety and identification should be in place,” he added. 

Farooq and Onyx tackled a few of these safety and verification points as a part of Challenge Guardian, an trade pilot the Financial Authority of Singapore introduced in Could.

“It was very, very laborious,” Farooq mentioned through the panel.

Within the pilot, DBS Financial institution, JPMorgan and SBI Digital Asset Holdings carried out transactions in tokenized international alternate and authorities bonds. Tokenizing a monetary asset entails changing its possession rights into digital tokens. It permits monetary transactions corresponding to borrowing and lending to be carried out autonomously on a blockchain with out the necessity for intermediaries.

“It was the primary time we had tokenized deposits. I really assume it is the primary time any financial institution on the planet has tokenized wallets on a public blockchain,” Farooq instructed CNBC in an interview.

“Utilizing public blockchain, we had to spend so much of time considering by way of identification. We did numerous audits of good contracts as a result of once more — they have been publicly seen. And at last, it was utilizing a protocol to truly make all of it occur. It is a whole lot of managing the dangers. All of those have been firsts for us,” he mentioned.