ASX, which operates Australia’s stock market, says the custody of cryptocurrency held on centralized exchanges presents a significant cybersecurity risk to investors, and recommends that regulatory action be taken to protect digital assets. It made the comments in a submission to the country’s Senate Select Committee on Australia as a Technology and Financial Center.
Fast facts
- Likening centralized exchanges’ access to investors’ private keys to the possession of legal title, ASX said the arrangement potentially allowed users’ digital assets to be dealt with in an unauthorized manner. Investors had to trust crypto exchanges to operate in good faith due to the legal standing the exchanges had in relation to their assets.
- ASX said the arrangements also left assets on centralized exchanges very vulnerable to cybersecurity hacks, a concern to be taken seriously, given the frequency of such attacks in the crypto space. A recent study by Atlas VPN showed that hackers stole US$3.78 billion in 122 blockchain-related hacks in 2020 alone.
- ASX recommended introducing regulations for centralized exchanges in the form of greater disclosure, requirements for core standards, and assurances that digital asset custodians are independent.
- Australia’s senate is currently looking at rules around crypto and fintech, with a concurrent committee on Australia’s fintech sector also examining regulation in the crypto industry. Both committees seek to modernize Australia’s regulatory approach to new technologies such as cryptocurrencies, and ensure the country is able to remain competitive in the face of changing technological and economic circumstances.