The Australian government is moving towards regulating cryptocurrency, with a focus on those involved in developing and maintaining crypto platforms.
Australia’s Treasury Department recently released a proposal paper on regulating digital asset platforms, aiming to support innovation while addressing consumer harms associated with digital assets. The collapse of FTX, which affected over 50,000 Australian consumers, was cited as an example of the vulnerabilities of intermediaries.
The Treasury’s proposed response includes requiring digital asset platforms holding over a certain threshold of Australian assets to hold an Australian Financial Services License. Stricter standards for safeguarding assets are also proposed, such as the use of continually monitored and routinely audited custody software.
Cryptocurrency is known for its vulnerability, with Australia experiencing several incidents, including a AUD$40 million (USD$26 million) hack on the crypto betting platform, Stake, and the theft of over one million from an Australian Bitcoin bank in 2013. After a decade of escalating losses, the government is firming its response, pushing developers into action.
Why crypto is so hackable
Crypto assets are, in theory, quite secure. Once you buy an asset, blockchain technology records you as the exclusive owner of that data. If you were to then put it on a harddrive and take it offline, coupled with the required password to access the “wallet,” crypto is harder to steal than credit cards or cash — though, you’ll want to make sure you don’t lose the hard drive.
SEE: Increased security spending in Australia may not be enough to combat rising cyber threats.
The problem is that there’s a lack of utility in holding crypto like that. To use it like a currency or buy and sell it like an asset, you need to expose your crypto to the internet, generally through exchanges. This is where the hacks happen.
The lack of regulation in the crypto space has long been cited as a reason for a lack of security in the crypto space.
“Given the digital nature of cryptocurrencies, imposing rigorous cybersecurity regulations on crypto platforms could be instrumental in protecting these markets against hacks and data breaches,” an Investopedia article notes.
How crypto developers should prepare for regulation
First and foremost, IT professionals working in crypto and on trading platforms will need to be aware of the security obligations under the Australian Financial Services licence. While crypto regulation is in development, the licence will certainly be adopted as part of the mix.
Have a deep understanding of the regulation
The first step for developers that don’t have existing experience in the legal landscape that governs incumbent financial services organizations will be to gain a working knowledge of this. They will likely be working closely with the legal teams in the future and will need to have a response to their concerns. This could involve understanding complex legal concepts and working closely with legal teams.
Be prepared for team sizes to get larger and projects more complex
The regulations could lead to increased demand for IT professionals with expertise in blockchain and other technologies underpinning cryptocurrencies. This will mean that IT teams will increase in size, and the scope of projects will increase in kind. IT pros working in crypto will want to acquire project management skills, as those will be called on soon.
Understand how finance handles data, as crypto will also need to
Another area where IT teams in crypto will need to “skill up” rapidly in is the depth and complexity they can handle data, and this includes the classification of crypto assets. There will also need to be greater levels of accountability built into platforms, and for some, this will be challenging.
SEE: Discover how Australian fintech startups are changing the game.
One of the appealing things about crypto for many investors is its anonymity. However, in order to meet the requirements of financial services licences, particularly laws around money laundering, platforms are going to need to be able to trace and monitor transactions.
Work on security capabilities
There’s the simple reality that as regulation increases so too will obligations to the consumer. Platforms will need to adopt better security practices, even if that results in platforms that are a little less innovative and flexible. Otherwise, the loss of financial assets via a hack could be a business-ending event.
Crypto is about to be transformed through regulation
In short, crypto platforms will be challenged to transform with the regulations the Australian government has on its agenda. In the long term, there will be benefits to platforms, as the consumer safeguards and regulatory framework will help to build trust in crypto.
For now, however, those building the platforms should brace for some significant transformation workloads because, spurred on by the ongoing vulnerabilities in this area, Australia’s government will work quickly to make sure the country is prepared for the ongoing and growing role crypto will play in it.