Crypto world shaken after million dollar theft

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on August 13th, 2021.

This week’s million dollar theft of cryptocurrency has shaken the financial world. The theft comes in the middle of a major discussion about increased regulation of cryptocurrencies, writes SvD’s tech analyst Björn Jeffery, and clarifies the crossroads the industry is facing.

Imagine the following scenario:

A bank is robbed of 610 million dollars.

The next day, the robbers decide to give back a little more than half of the money. They explain to the bank and their customers that they only robbed it to prove that it could be robbed. And a little because they thought it was fun too.

As compensation for the fact that they have now returned $342 million, they would like the customers, the bank, and possibly other people to donate some more money to them as a thank you. This is in addition to the $268 million they still had left from the robbery.

This is exactly what happened this week, although the bank was a platform for cryptocurrencies and the robbers were hackers. The affected platform is called Poly Network and provides a way to link different blockchains.

According to Bloomberg, security experts have found personal information about the hackers, which may have been one of the reasons why some of the money was returned. It is the biggest theft in the crypto world so far, and it also comes at the completely wrong time for its enthusiasts.

In April this year, all cryptocurrencies reached a market value of over $2,000 billion in total. Interest from the establishment, despite repeated criticism of the phenomenon from many places, is also steadily increasing.

According to a study conducted by the fund manager Fidelity, seven out of ten institutional investors expect to invest in cryptocurrencies in the future and half of those surveyed had already done so.

But as the institutional capital begins to roll in, questions about security, taxation and regulation are also raised. In order for investors to feel completely comfortable with investing in cryptocurrencies, a regulatory framework is needed that ensures that normal requirements for investments are met. This is largely missing today.

There is also a great deal of ignorance from almost everyone in the market. Cryptocurrencies and blockchains are technically complex systems that use some terminology from the established banking and finance world, but basically does not work in the same way – intentionally. In fact, systems are often designed to be completely decentralized, and thus difficult to monitor and control. For many crypto enthusiasts, this was the appeal from the very beginning.

The fact that politicians and the judiciary are starting to look more closely at cryptocurrencies is therefore not met with cheers from all sides of the market. But the proposals for regulation now come from an unusually qualified place. Gary Gensler, chairman of the SEC, has himself lectured on, among other things, cryptocurrencies and blockchains at the prestigious American university MIT.

Gensler gave a speech at the Aspen Security Forum earlier this summer in which he clearly pointed out that the SEC regarded many cryptocurrencies to be just like any other type of security. Thus, they should be regulated accordingly. The speech was received with relative calm, probably driven by Gary Gensler’s experience in the field. The market has expected some form of regulation, but the nightmare would be rules that are technically impossible to live up to. With Gensler, it significantly reduces that risk.

The crypto world is therefore at a crossroads. The explosive development that has taken place in recent years is what has attracted everything from individual speculators to large institutions and corporations. If strict regulation and correct taxation are introduced, there is a risk that that enthusiasm could diminish.

At the same time, there’s a need for legitimization in order to be truly accepted into the old school world of finance, where the really big money is. This will be difficult to get when the market is more like the “Wild West”, as Gary Gensler himself described it.

On Friday, the news came that Poly Network had offered the hackers half a million dollars as a thank you for noticing a weakness in their security. The payment would be part of the negotiation to get back the remaining stolen money.

Whether the hackers in question accepted the offer was still unclear on Friday afternoon. In any case, it is clear that the discussion about regulation of the crypto world is unlikely to diminish in the future.

This column was first published in SvD Näringsliv, in Swedish, on August 13th, 2021.

Processing…
Success! You're on the list.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.