The following is a guest post from Ben Mills, co-founder of Meso.
The U.S. Securities and Exchange Commission blessed Ether and Bitcoin ETFs, and the U.S. House of Representatives passed FIT-21 with bipartisan support. The perception is that these are the next steps in the ongoing experiment to see if regulation can reduce the risks inherent in cryptocurrencies and tame the wild digital asset sector.
But what if I told you that crypto, by its very nature, has the potential to be much more secure than the existing financial system?
The salient concept here is ‘custody’, or more specifically ‘self-custody’ – the ability of people to maintain control over their own assets and data during financial transactions, without the intervention of third parties such as banks, exchanges or web companies.
Let’s be honest. The majority of people who pay only cursory attention to crypto are most likely formed by news headlines about catastrophes like the collapse of Sam Bankman-Fried’s FTX or the conviction of Binance CEO Changpeng Zhao on money laundering charges.
However, these scandals had much more to do with human nature than the nature of crypto.
Looking back at the crypto bull market of 2019-2020, developers tried to build advanced crypto-powered applications that were simple for novice traders and investors. In too many cases, simplicity has been achieved by sacrificing self-control and relying on the responsible management of huge centralized exchanges like FTX.
Consumers were presented with a combination of the worst risks of Web2 fintech and the unsolved problems of Web3. This shortcut led to disaster for the companies, their investors and their customers.
But we don’t need to hearken back to Lehman Brothers to show that crypto doesn’t have a monopoly on spectacular financial failures.
Take for example the current case of Synapse financial technologiesa non-crypto company whose platform is an intermediary through which financial technology companies can offer bank-like services (such as checking accounts, credit cards and debit cards).
The issues of trust and custody are at the heart of the implosion of the banking-as-a-service pioneer that was once touted as the frontrunner of fintech and is now teetering between bankruptcy and liquidation. U.S. Bankruptcy Court Judge Martin R. Brash said “tens of millions” of individual “depositors” are on the hook for losses amounting to “potentially hundreds of millions of dollars,” according to a report by Forbes.
Speaking as a developer and former product expert for companies like Braintree, Venmo and Paypal, which have since seen the light of blockchain payments, I can tell you that the real power of crypto, compared to traditional fintech, is that it allows developers to in a much faster and leaner way. That’s because the underlying blockchain technology already takes into account fintech bugbears such as data security, payment integrations and – as mentioned above – the custody of funds.
The new generation of crypto-powered apps has the advantage of new technology that abstracts complex details in favor of user-friendly interfaces. At the same time, it maintains self-control so that it does not face the same risk as centralized entities during the last cycle.
In other words, while public attention is fixated on putting out the fires set in 2019-2020, the crypto infrastructure has matured enough that we can get the best of both worlds: a friendly Web2 user experience with apps that are built by developers who don’t. You don’t have to worry about escrow of user data or money, making it more secure for every participant.
That’s what gets developers and crypto entrepreneurs excited about digital assets. Crypto is becoming more secure, faster, and easier, ultimately refining itself beyond the average user experience. This intentional invisibility is an important goal at the end of crypto’s journey to become an important part of the mainstream financial system and people’s daily lives.