The Australian Securities Exchange (ASX) wrote a letter to the country’s Senate last week pointing out several risks in holding digital assets and calls for better regulations around the industry.
“On major blockchain platforms such as Bitcoin and Ethereum, digital assets are associated with a user through an address. Whoever can access the address is effectively the custodian of the digital assets in that address,” the stock exchange explained.
The letter was particular with the storage of the digital assets on the crypto exchange and said that the private keys held by the exchanges of their customer crypto wallets leave the assets vulnerable to security breaches.
Additionally, it pointed out that cryptos stored on exchanges possess the risks of dealing in an undisclosed or unauthorized manner.
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Indeed, we have seen several high-profile crypto heists in the past that siphoned billions of dollars worth of cryptocurrencies together. Even big and reputed crypto exchanges are not secure from breaches. On the other hand, many crypto exchanges pulled exit scams to run away with customer deposits.
“Crypto exchanges can provide a user experience which is attractive to many Australians who wish to invest in crypto assets, including the experience of a password-based login. However, as others have noted, there are risks in these custodial arrangements for digital assets,” the ASX noted. “Many of these risks are associated with the management of private keys.”
The exchange is now proposing the Senate committee come up with laws that will require disclosure of the terms of custodial arrangements and risks to the users. Additionally, core standards need to be set relating to capital, technological, operational and governance matters of crypto custodians.
“It is worth considering whether investors understand the risks and benefits of owning digital assets through a custodian or an exchange operating as a custodian,” the letter added.