Crypto Predictions Through Q2 – 2023

Volatility in the crypto business in 2022 left many uncertain about what was in store for 2023. While reflecting on the previous year, several lessons and insights are to be gleaned. The first month of 2023 has also presented a better image of what we anticipate in the near to mid-future. In the second quarter of 2023, we expect many significant industrial effects. These developments will help transform the crypto business into a more safe and more efficient place for both institutional and individual investors in the future.

Blockchain certification

Credentialing as a service (CaaS) and, more generally, blockchain-based credentialing were increasing topics of discourse in 2022, and this trend will continue in 2023. The concept of digital identification (dID) is evolving not just in the crypto but also in the conventional world. After the passage of the Digital Economy Act in 2017, the United Kingdom has paved the way for enhanced identity verification procedures. Beginning in 2023, the U.K. Data Sharing Legislation Team launched a public consultation on a draft bill to facilitate digital identity verification for general applications. Web3 began to develop with on-chain credentials to provide a more transparent, trustless system for decentralized identities, similar to the United Kingdom’s decentralized credentialing system. On-chain certifications enable users to demonstrate digital identities and authentically participate with protocols as anonymous persons. Most typically NFTs, on-chain credentials now give an identification method or confirmation of a completed task. For example, Ethereum Name Service (ENS), a distributed, open and flexible name system, has been utilized to establish an identity for an otherwise anonymous person.

To make on-chain credentials non-transferable, the notion of Soulbound coins has gained traction to provide additional, non-transferable information about individual wallet users. Vitalik Buterin, the co-founder of Ethereum, conceived Soulbound tokens in the co-authored article “Decentralized Society: Discovering Web3’s Soul.” The study’s authors define soulbond tokens (or SBTs) as non-transferable NFTs that embody social identity and experiences in a decentralized community. Soulbound tokens and other on-chain credentials are on track to provide a trustless mechanism for managing sensitive data that connects conventional venues and Web3. In the last month, Ethereum scaling solution zkSync incorporated the on-chain, digital identity solution RNS—ID, providing an on-chain privacy solution for confirming government IDs using zero-knowledge proofs. Buenos Aires, Argentina, and the island country of Palau have already used RNS’s ID system as their digital identification platform.

Platforms have begun developing soulbond tokens for frictionless transfer of KYC credentials for CeFi and DeFi transactions, bridging conventional banking and digital assets. In September, Binance stated that it would distribute soulbond tokens to all BNB blockchain users, enabling users to access permissions DeFi without constantly resharing sensitive data.

BCB Group adheres to the philosophy of “regulation first.” The development of blockchain credentials will allow institutional customers to access the crypto market and protect the security of the crypto sector. As this field continues to expand, we hope this solution becomes mainstream among retail and institutional customers.

Regulation and compliance

According to Ron Hammond, head of government relations at the Blockchain Association, “nothing motivates legislation more than a crisis.” The spectacular failure of the cryptocurrency exchange FTX has unquestionably piqued the interest of authorities, who were already increasing their involvement in the market. Jim Himes, a U.S. House of Representatives member, previously told CoinDesk, “The collapse of FTX has unquestionably affected how Congress views this issue.” The failure of FTX and the acts of other rogue actors have increased compliance requirements, with some nations establishing additional restrictions to safeguard investors.

Yet, the march toward regulation remained continued throughout most of 2022. In December, Brazil enacted a groundbreaking crypto policy that offers explicit definitions for digital assets and protections against money laundering and fraud. The European Union has adopted the Markets in Crypto Asset Regulation (MiCA) framework, which comprehensively addresses problems like as anti-money laundering and stablecoins.

As the sector advances toward 2023, we may expect an increase in regulation. Those who have maintained compliance will endure this crypto winter until 2023 and be ready for forthcoming regulations. For others, the beginning of the year will mark a significant move toward observation and a reconsideration of operating strategies. Although the previous year has undoubtedly altered the industry’s environment, there are still endless chances for initiatives to continue building and supporting the widespread adoption of crypto assets. The majority of opportunities are available to individuals that operate securely.

BCB Group advocates for effective and efficient industry regulation through licensed businesses in the United Kingdom (API) and Switzerland (VQF). This year, the company intends to add a French EMI and DASP license to its portfolio to grow its reach among tier 1 regulatory license holders. BCB Group views compliance as a quality characteristic and a competitive advantage, as opposed to a threat, by emphasizing compliance practices that satisfy stringent international regulatory requirements. As others in the TradFi industry seek to reduce or eliminate their banking exposure to crypto companies in the wake of FTX, BCB Group maintains its unshakable commitment to this highly creative industry.

Security in detention

The crypto sector will likely reward initiatives and firms that provide secure, creative solutions per regulatory compliance. A new analysis indicates that 2022 was one of the worst years ever for stolen cash, with almost $3 billion in crypto assets lost due to thefts and vulnerabilities alone. One-time audits and opaque security procedures are coming to light, and the recurring exploits have prompted users to seek out more secure methods of crypto storage.

With the collapse of the FTX, the need for evidence of reserves surged rapidly. In 2023, accountability via enhanced security will be one of the most prominent developments. A return to more robust asset management and a solid, compliant security solution will be the impetus for new CeFi and DeFi players to establish themselves and for established businesses to keep their customers. In addition to constructing a solid security program, investments in innovative security approaches will bolster the prominence of security in custody in 2023. This tendency has already begun to emerge with multiparty computing (MPC).

MPC technology has several uses in technology and security, but it has lately emerged as a means of securing cryptocurrencies. MPC wallets are keyless, unlike typical self-custody systems like cold or hot storage wallets. MPC wallets produce private keys by aggregating encrypted key shards to remove key-person risk and boost control; unlike standard wallets, users generate a private key to sign transactions.

In the second half of 2022, initiatives like Cypherrock, Fordefi, MPCH Labs, and Particle Network raised capital to create MPC-powered crypto products. Fireblocks, valued at $8 billion after its Series E fundraising round in January, became the first firm to satisfy the Cryptocurrency Security Standard (CCSS) certification standards with its latest achievement. BCB Group is actively creating a new custodial infrastructure based on hardware security approaches similar to its competitors in the sector (HSMs). HSMs are physical computing devices that safeguard private keys with cryptographic protection. By adopting a new HSM infrastructure, BCB Group is adding an offline security layer to the assets of its users to assure their continuing safety against malicious actors.

As the industry progresses towards 2023, both CeFi and DeFi companies will significantly focus on security and invest in innovative technologies that secure digital assets more effectively.