Coming from a professional background in computer science and security, Marta Piekarska, Director of DAO and Web3 Strategy at ConsenSys host a fireside chat with Nanak Nihal Khalsa, Co-Founder of Holonym Foundation, to discuss the current state of privacy in Web3 and how individuals can protect their privacy in the crypto space.
Nanak emphasizes the need for privacy protection, even though individuals may initially think they have nothing to hide. He highlights the risks associated with freely giving away personal data and the potential for abuse and breaches.
He explains that while Web3 is often associated with enhanced privacy, it primarily offers pseudonymity rather than anonymity. There is also a dilemma for individual users to balance privacy and government support. He highlights the potential of zero-knowledge technology to introduce new privacy primitives and enable private transactions while still complying with regulations.
According to Nanak, the movement advocating better privacy adoption in Web3 still appears mainly decentralized and lacks a cohesive push. Holonym Foundation has also been working with Lobby3DAO, a Web3 community aiming to provide people with voices in public policy in the United States, to explore confluences with government, regulations, and lobbying.
To protect their privacy, EBC speakers suggest users be cautious about logging in to websites with their wallets, as this can potentially expose their wallet addresses and transaction history. Taking steps to secure personal information and utilizing privacy-enhancing tools are crucial for safeguarding privacy in Web3.
A very enlightening discussion took place during the 8th European Blockchain Convention with Maria Apogeni, CEO of BITMarkets, Serra Wei, Founder & CEO of Aegis Custody, and Clarisse Hagège, Founder & CEO of DFNS to discuss wallets, exchanges, and custody.
Not Your Keys, Not Your Crypto
Clarisse believes that owning your private keys is important for crypto ownership, but contrary to what people think, she argues that physical ownership is not necessary to keep assets secure.
In her opinion, key management is difficult and can easily lead to loss of funds, not to mention that many users still record their private keys on cloud service after purchasing a hardware device. With the advancement of technology, Clarisse envisions decentralized custody with a focus on recoverable proof of user signing power.
Segregation of Funds Is Important
Serra points out that qualified custodians in the United States now have to demonstrate that they hold private keys to customer funds while proving customers’ funds are segregated. Clarisse thinks that centralized exchanges were a response to the difficulty of interacting with blockchain technology, but technological advancements, such as multi-party computation (MPC), can help rebuild trust and increase security. She suggests that segregated wallet infrastructure is crucial to guarantee the safety of user funds in case of bankruptcy.
The Future of the Crypto Space
Serra thinks that the collapse of FTX highlights the need for better risk management and infrastructure in the crypto space. Companies are now focusing on differentiating themselves by providing institutional-level solutions and complying with regulations. In the long run, this will set a new standard for sustainability and growth in the industry.
Clarisse expresses optimism in the future of the crypto space despite the fact that the institutional U.S. market is currently facing regulatory uncertainty. She believes that decentralized finance (DeFi) will come up with new solutions to deal with the situation.
More EBC insights on crypto, regulations, and privacy:
This infrastructure panel was moderated by Oskars Jepsis, CEO & Co-Founder of ALTER Network. Berken Menges, Head of Marketing of CoinTracking, and Antoine Scalia, Founder and CEO of Cryptio, contributed to the discussion, providing insights from B2B and B2C perspectives.
What Are the Current Tax Regimes in the Crypto Space?
Antoine believes that the current tax regimes in the crypto space are generally clear for trading, capital gains, and swap tradings, but there are still complexity and uncertainty in new use cases such as staking and rewards on lending protocols.
After the FTX collapse in 2022, some media is claiming that the auditing firms stop doing audits for crypto clients, but Antoine disagrees. He mentions that many companies pause Proof of Reserve until they find better ways to do it, but they are still conducting financial statement audits.
Berken shares that even though the tax regulations are relatively complete in Germany, the public is still hesitant to invest in cryptos. His company has been actively communicating with policymakers and educating the public to increase people’s trust. He also believes that making the infrastructure more user-friendly and automated will be crucial in helping the public adopt digital assets.
What Are the Challenges for Enterprises and Retail?
Berken identifies several challenges from the B2C side. Since different transactions belong to different types of taxation, aggregating and classifying all the data is the hardest part. It requires distinct methods to obtain data from centralized exchanges and decentralized finance (DeFi) platforms. Also, Berken acknowledges the importance to keep up with new blockchains and trends while prioritizing.
Complementing Berken’s point, Antoine thinks that the B2B side also faces challenges with coverage and integration with exchanges. It takes lots of time to collect accurate and complete data in an auditable way. Since the existing data analyzing tools, such as EtherScan, aren’t designed to be used for accounting purposes, there are missing features and a lack of consistency.
Antoine points out that, for conducting both Proof of Reserve and financial statement audits, there is an obvious lack of adequate tools. While auditors are normally not familiar with the latest technology, he thinks there are many market opportunities for companies providing tools and infrastructure to ease up the process.
Antoine argues that the emergence of new use cases is too rapid for regulations to catch up. It’s thus important for enterprises to collaborate with experts in the field to navigate the evolving tax landscape. He emphasizes the need for reliable data infrastructure that can provide clear and easily understandable data for new use cases, in order to rebuild trust in the blockchain systems.
Berken thinks it’s challenging to understand and comply with different tax requirements in different countries. The process of evaluating tax reports and interpreting regulations can be time-consuming and complicated, especially with new use cases. However, he believes that once there is a clearer path and more clarity in tax regulations, it may ease up the challenges for institutional adoption.
BlackRock’s Bitcoin ETF launch and the participation of Charles Schwab, Fidelity, and Citadel Securities in EDX Markets have sparked investor interest. Enhancing institutional adoption and establishing trust require discussing infrastructure improvements for traditional finance players entering the crypto market.
This essential panel is moderated by Madeleine Boys, Head of Community at GBBC, who leads the discussion with Vincent Dulhoste, CTO of Kaiko, Glib Udovychenko, Founder and CEO of Whitepay, David Engel, Head of Business Development at StarkWare, and Rajiv Sainani, Head of European Business Development at MakerDAO.
Key Infrastructure Components To Scale the Institutional Adoption of Crypto
David emphasizes the need for regulatory clarity and the necessary technical infrastructure, including wallets, protocols, and liquidity. Rajiv echoes David, highlighting the importance of bridging the gap between on-chain and off-chain and improving the efficiency on and off-ramps.
In order to create a seamless off-chain experience, Vincent emphasizes the importance of interoperability and composability in DeFi to provide a better experience for institutional adoption.
Personal Experiences of Interacting With Institutions
Glib shares that during the war in Ukraine, Whitepay implemented crypto processing for President Zelenskyy’s website to collect over 12 million in crypto for funding. This experience led the team to work on similar crypto projects with other EU governments and develop projects related to state services that can be paid for with crypto. His experience demonstrates that governmental institutions can benefit from private companies integrating services to help with urgent needs.
From MakerDAO’s experience, Rajiv highlights three waves of institutional use cases for real-world assets in DeFi. The first wave involved working with young innovative companies. The second wave saw regulated financial entities, such as the U.S Commercial Bank, experimenting with DeF. The third wave involved deploying capital from on-chain protocols into the off-chain world. Rajiv also notes the importance of legal frameworks, the need to build more products natively on-chain, and the challenges of bridging traditional finance (TradFi) and DeFi.
Representing Starkware, David shares their experience with Visa. Visa built a proof of concept using account abstraction on StarkNet to turn a dumb wallet into a smart wallet, allowing for recurring payments. The innovation in wallet infrastructure and building web 2.0-like wallets is important for onboarding users and giving enterprises the tools to deliver better user experiences.
Vincent shares Kaiko’s experience with financial institutions on both the buy and sell sides. The company provides benchmarks and prices for investable products, supporting the investment life cycle, tokenizing real assets, and working with regulators to provide reliable data for market surveillance.
Challenges to Bridge TradFi with Web3 Infrastructure?
Rajiv identifies two main challenges: the lack of understanding of on-chain paradigms by large institutions, particularly in legal and compliance departments, and the trust issues in the industry due to the challenging conditions in 2022. As many institutions start to explore Web3, Rajiv thinks that conducting institutional finance on a public blockchain is probably one of the biggest barriers in terms of the effects of privacy and confidentiality.
David also points out two possible challenges for building blockchain solutions for institutional finance: the difficult business model due to smaller volumes and regulatory/legal challenges, and the challenge of creating a real business case for selling to institutional finance.
He thinks that replacing existing institutional infrastructure with blockchain will be slow and selective because it’s really challenging to disrupt a robust and strong system. He believes that it’s important for the industry to identify specific areas where blockchain can make a difference, such as B2B payments.
Vincent thinks education is essential to mitigate institutions’ concerns to move into Web3. He thinks it’s critical to let them understand that it’s possible to deliver secure services on blockchain. The reliability, security, and scalability of blockchain technology should be educated to build trust.
More EBC insight on institutional crypto adoption:
The panel about the opportunities and challenges of issuing digital assets for financial markets is moderated by Bernard Nicolay, Adjunct Professor of Finance at the Solvay Brussels School of Economics & Management. Panelists include Thomas Jeulin, Head of Sales at Flowdesk, Victor Busson, CMO at Taurus, Kasper Luyckx, Head of Product at the Crypto Finance Group, and Viktor Banh, Digital Assets Markets at DekaBank.
Benefits and Challenges of Digital Assets
There are three main types of digital assets: cryptocurrencies, tokenized assets, and digital currencies. Tokenized assets are digitized private assets, such as equity, debts, and real estate while CBDC and stablecoins are examples of digital currencies.
Tokenization can reduce costs and settlement time, increase liquidity, and provide access to different investors in the market. With DeFi, actors that didn’t have opportunities to engage in the traditional financial market, such as many small and medium-sized enterprises (SMEs), will be able to participate due to the reduction of the counterparty risks.
Kasper explains that blockchain technology enables direct peer-to-peer transfer of assets without the need for intermediaries, which fundamentally disrupts the security space as it eliminates intermediaries that charge fees for simple handovers. And as the networks grow and more assets are represented on the networks, we will be able to reap an even more significant impact on capital markets.
However, scalability, standardization, and interoperability need to be considered. Interoperability allows different networks to communicate with each other using shared protocols and standards, and it facilitates a more seamless and efficient system. On the other hand, a lack of standardization creates additional costs and complexities for banks and other institutions. Having different regulations in different countries makes it difficult to carry out new projects, and investigating local regulations is simply time-consuming and complicated.
Factors to Be Considered When Building a Business Case
Profitability, scalability, and security are the important factors to consider for a business case. Victor states that, when building a business case, the first step is to choose a technological provider and make sure the tokenization is profitable. However, once the proof of concept is proven to be profitable, it’s crucial to analyze whether profitability and security can be maintained when the model scales up.
A lot of businesses will have to ‘unlearn’ things they’re doing today and learn new things… We will see a lot of disruption and some of these companies will have to rethink how they can stay relevant in the future.
Kasper Luyckx, Head of Product at the Crypto Finance Group
What Roles Will Banks Play in the Future Financial Market?
Kasper thinks that as peer-to-peer transaction popularizes and transaction fees decrease, it will be unnecessary for a middleman to exist, and business models that rely on intermediaries will be significantly disrupted. Custodians, however, will still play an important role in the market because not everyone will be willing to maintain self-custody over their assets. The key for those centralized institutions is to open up their platforms and be willing to connect to the services and wallets that their clients want to use.
More EBC insights on traditional banks and cryptos:
The Needed Talents in the Market of Digital Assets
According to Thomas, the winners in the future financial market will be compliant firms that bridge the gap between traditional finance and crypto space, and firms that are agile, innovative, and strong in technology.
Apart from learning how technology works, Kasper emphasizes the importance of gaining hands-on experience. Only through doing and experimenting can we gain a true understanding of how the technology operates, where it adds value, and how it can make a real impact.
On the other hand, speaking from an individual perspective, Victor thinks that mastering the tech stack and possessing the ability to adapt to technical challenges are valued in the market. At Taurus, they are looking for talented developers that are positive, eager to learn, and agile in this fast-paced industry.
I’ve seen so many bankers who take expensive courses that teach DeFi while you can just get a wallet, connect to DeFi, and try it out yourself. I think it’s so important because you learn while you do. You interact with the technology and you see where it adds value and where it doesn’t.
Kasper Luyckx, Head of Product at the Crypto Finance Group