How Banks Can Leverage NFT Innovations to Protect Crypto-Related Funds
Traditional banks have been major critics of Bitcoin since its debut back in 2009. However, it appears that these heavyweights are now changing the approach to integrating their services with decentralized markets. As per the latest developments, most of the leading global banks have either announced an interest in the crypto ecosystem or pioneered an in-house product tailored to the digital asset economy.
Some of the players in this sector that have already launched a crypto-focused innovation include JP Morgan which developed a token dubbed JPM coin. Meanwhile, Standard Chartered has invested in Ripple’s blockchain-based interbank settlement technology. While none of these products offers their clients direct exposure to crypto, Goldman Sachs is set to level up the game following an announcement that they will soon be featuring Bitcoin and altcoin portfolios.
According to the announcement, Goldman’s strategic integration of crypto investments has been driven by growing demand from the bank’s clients. The firm’s global head of digital assets Mary Rich said in a recent interview that they are currently working on developing structured crypto products for the bank’s private wealth clients. She went on to note there is a contingent of clients who are looking at this emerging asset class as a hedge against inflation.
“There are also a large contingent of clients who feel like we’re sitting at the dawn of a new Internet in some ways and are looking for ways to participate in this space,” added Mary Rich.
The Security Challenge
While the move to integrate digital is fundamental in improving the larger banking ecosystem and investment opportunities, one cannot ignore the underlying security risks. Last year, over $4 billion worth of crypto funds was lost through security breaches. The most notable was the Poly Network hack where the malicious actors almost got away with $600 million, having exploited a bug on this DeFi protocol.
That said, banks ought to be extra cautious given their little experience with the crypto market and its nuances. The big question is how traditional institutions can protect crypto funds under their management? As it stands, hardware and paper wallets are the go-to for most crypto stakeholders. However, these avenues have their shortcomings (damage or loss of one’s seed phrase).
NFTs as a Solution to the Crypto Market Security
Non-fungible tokens (NFTs) could be the ultimate solution to crypto market security. This nascent ecosystem features a wide range of innovations, including digital collectibles, play-to-earn games and decentralized identification (DID) platforms. The latter is a game-changer in on-chain security given the indistinguishable nature of NFT assets.
Banks looking to leverage the potential of the crypto market can secure their funds through blockchain-oriented platforms such as Serenity Shield, which is built on a smart contract infrastructure that enables its users to automatically protect their funds. This decentralized application (DApp) features an NFT key function, allowing users to create a StrongBox account where they can store or save the unique credentials associated with a particular crypto holding.
With Serenity Shield’s NFT solution, corporations that have invested in crypto through cold wallets can seamlessly recover their seed phrases. This is possible through the platform’s NFT partitioning strategy that divides the on-chain data into three NFT segments. One of the NFTs can be stored by the banks, the second by a custodian while the last NFT is stored in the Serenity Shield smart contract vault.
In the event of a seed phrase loss, a bank can retrieve the information by providing the NFT Key stored by a custodian while Serenity Shield provides the other key to meet the minimum requirements for unlocking the information. Similarly, crypto holders can use Serenity’s StrongBox as a way of passing their holdings to future generations.
Going by the current developments, it is more likely than not for traditional financial institutions to integrate with the crypto ecosystem. This calls for stakeholders from both niches to implement long-term security measures that will instil confidence in both small-time and deep-pocket investors.
NFTs are proving to be the perfect tool for creating such an ecosystem, no wonder the increased focus on digital collections. As the crypto industry comes of age, most digital platforms will be powered by NFTs, a trend that is already evident in the upcoming innovations.