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12.6 Cybersecurity for digital assets – Future outlook and key themes
Cybersecurity is a relatively nascent and radically changing topic in the digital assets space. Below we shed light on key cybersecurity trends that sit at the intersection of digital assets, and provide insights on how the future will look like for cybersecurity for digital assets.
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Figure 121. Cybersecurity for digital assets – Future events and catalysts
Future trends Details
Strengthening of antiransomware systems and cybersecurity alliance The future will see the further development of a system capable of blocking off ransomware attacks, supported by AI and big data-based infrastructure. Governments are forming cybersecurity alliances with firms in the areas of cloud and web hosting services.
Establishment of insurance companies under digital asset exchanges Establishment of “captive” insurance subsidiaries wholly owned by the firm being insured to reduce costs and improve access to reinsurance markets.
Zero trust model Zero Trust is a strategy to protect critical assets by limiting access by role. Zero Trust is a security concept centred on the assumption that organizations should not automatically trust anyone. Instead, it must verify before granting access to its systems.
Source: Coindesk, Microsoft
Significance
It protects firms against hackers who demand ransom after taking hostage of vital information.
It partially addresses the shortage of insurance coverage available to digital asset exchanges.
It addresses the shortcomings of failing legacy approaches by removing the assumption of trust.
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Key Takeaway
▪ Three game-changing trends in 2022: Decentralized Finance (DeFi), NFTs, and the Metaverse
▪ The growing mainstream adoption of digital assets and rapidly developing institutional interest in the asset class will continue into the coming year and further accelerate innovation.
▪ Evolving regulations around the globe, compliance changes for digital assets and the entry of traditional enterprises could drive a better cybersecurity framework.
Floyd DCosta is the co-founder of Block Armour, a Cybersecurity venture that was accelerated by Airbus and featured among the Top 25 cybersecurity innovations worldwide. He is also the co-founder of Blockchain Worx, a Singapore based FintechRegtech startup focused on enabling Digital Banking with Blockchain technology and developing integrated platforms to promote institutional participation in Decentralized Finance (DeFi).
With a background in Management Consulting, Floyd has over 20 years of professional experience in setting up and growing international business practices and advising senior client executives on decisive topics. His previous experience includes eleven years at Capgemini and spans various high-tech industry sectors and technology platforms. A regular writer and speaker at events, Floyd advises multiple organizations on harnessing the potential of emerging technologies for Digital Transformation.
Floyd holds a Masters in Computer Information Systems from ITM, Mumbai, and the Exec General Management Program from IIM-Bangalore. And, when he is not travelling, Floyd enjoys spending time with his family in Singapore.
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Key Takeaway
The digital assets world needs to adopt and build in security mechanisms right at the design phase. It can no longer be an afterthought.
Emerging regulations around the globe, compliance changes for crypto and the entry of traditional enterprises will drive a better cybersecurity framework.
Cybersecurity
EP: What are the current top of mind cybersecurity issues? To what extent are different digital asset subsectors exposed to cybersecurity risks. (E.g. VASPs, DeFi, GameFi)
FD: Security incidents continue to plague the crypto world, with the size of hacks growing as cryptocurrency prices surge and the sector draws more mainstream attention. The two leading targets of crypto hacks remain centralized exchanges and decentralized finance protocols. From the $150 million stolen from crypto exchange BitMart to the $600 million Whitehat hack of the Poly Network, research shows that 5 of the ten largest crypto thefts of all time have happened this year, with DeFi-related fraud now making up about 75% of crypto hack volume in 2021.
As digital assets begin to go mainstream with regulatory changes at the doorstep, the crypto industry will need to start taking cybersecurity seriously. Both CeFi and DeFi will need to adopt cybersecurity mechanisms at the design phase and build-in next-gen security right at the core of modern DLT-based systems. It can no longer be an afterthought. On the positive side, Cybersecurity has progressed and now new models and novel approaches like Zero Trust are swiftly being deployed across government organizations and enterprises worldwide. Many of these can be directly adopted and deployed within the crypto world. Separately, new frameworks will need to be developed to address protocol-level security and ensure that DeFi can sustain and grow, especially if it must continue to attract interest from the traditional finance world, which places a large premium on security.
EP: What needs to happen before we have a robust cybersecurity framework? How do you foresee the cybersecurity paradigm will shift in 2022?
FD: Digital asset is a fast emerging market, and in a rush to launch new products and services, development teams often neglect the importance of building security right into the core of these systems. However, as jurisdictions around the globe start to roll our regulatory and compliance changes for crypto, cybersecurity will need to be an integral component of these services offered, CeFi and DeFi alike.
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Thelimited awareness by many users and businesses couldbe the biggest obstacle holding back adoption of Web 3 technologies and solutions in the immediate future. Furthermore, the entry of traditional enterprises and institutions will also spur cybersecurity firms to design products and offer solutions specifically for the crypto market. Today, startups like Block Armour are already venturing into this space with cybersecurity solutions for digital asset systems. Bringing together the latest security innovation and its applicability to the digital assets industry will help incubate a crypto security sub-ecosystem that could swiftly emerge and grow alongside the broader crypto market. The same also applies to the KYC, AML, and other compliance-related solutions as jurisdictions across the globe start to deploy tools like the cryptocurrency Travel Rule by the Financial Action Task Force (FATF) in a bid to support AML/CTF efforts.
EP: What factors pose major obstacles to the exponential growth and broader adoption of web3? How do you expect them to be overcome?
FD: As 2022 begins, more users and businesses will know of the term Web 3.0, although there is still a significant lack of awareness about how the next revolution on the internet will operate or impact them. This limited awareness will be the biggest obstacle holding back Web 3 technologies and solutions adoption in the immediate future. However, this can be quickly overcome as more enterprises and startups commit to innovating in this area. With Facebook's recent rebranding to Meta, the metaverse received considerable attention in the mainstream media. The same could happen on a broader level with Web 3 when more large, established businesses look at ways to evolve their existing business models into this space. Separately, Web 3.0 will have to offer more clarity and transparency into how it will honour decentralization before mainstream businesses delve into this world.
Another major factor that can hold back the adoption of this trend is cybersecurity concerns. If businesses fail to understand how to secure their decentralized data, they will face regulatory and compliance-related roadblocks in moving towards this upcoming technology trend. While it's addressable, there is an urgent need for a relook at how data is managed and secured in a decentralized ecosystem before mainstream adoption can truly take off
EP: In closing, what is the key takeaway you would like to impart to the audience?
2021 was undoubtedly one of the most exceptional years for Blockchain technology and digital assets. The year saw an astonishing number of innovations ranging from next-gen blockchain networks and related applications to DeFi and NFTs seeing explosive growth and becoming entire segments on their own and more. The fast-
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emerging technology also became an integral part of enterprises-IT fabric across industry sectors.
The growing mainstream adoption of crypto and rapidly developing institutional interest in the asset class will only continue into the coming year. This will, in turn, accelerate innovation within and around the space. With digital transformation in top gear postCovid-19, investors hooked on digital assets and global enterprises clamouring to get on board the DeFi, NFT, and Metaverse bandwagons, 2022 promises to be even more thrilling and captivating than the entire last decade of crypto.
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