Bank Of America Talks About Crypto And Blockchain Tech
- The Bank of America has come out in support of blockchain technology, and said that people should not tarnish blockchain technology with speculative crypto trading.
- Citigroup (C), HSBC (HSBC), BNY Mellon (BK) and Wells Fargo (WFC) along with payments giant Mastercard (MA) have participated in the testing phase for the use of digital tokens representing dollars.
- Bank of America also stated that the crypto space needs a clear delineation between trading platforms and market makers and emphasized on increased regulations.
The Bank of America has come out in support of blockchain technology and stated that crypto enthusiasts and firms should not tarnish blockchain technology with speculative crypto trading in a research report released Thursday, when a group of some of the biggest banks and the Federal Reserve Bank of New York tested the use of digital tokens representing dollars.
Citigroup (C), HSBC (HSBC), BNY Mellon (BK), and Wells Fargo (WFC), along with payments giant Mastercard (MA), have participated in the testing phase, which is a major step towards blockchain adoption in the traditional finance sector. The news comes at a time when the collapse of a multi-billion dollar crypto exchange FTX, has left the industry in a state of huge shock.
“The development of applications that leverage distributed ledger and blockchain technology continues to advance,” analysts Alkesh Shah and Andrew Moss wrote.
Additionally, the Bank of America said that a wholesale central bank digital currency (CBDC) allows faster settlement of payments providing the benefit of reallocation of funds that had been otherwise held as collateral into yield-bearing investments. Reduced costs, lower credit risk and increased transparency were some of the other benefits pointed out by the bank.
Bank of America also stated that the crypto space needs a clear delineation between trading platforms and market makers. After the FTX collapse, crypto firms and service providers have rushed in to show that they are fully liquid and functional. However, the bank stated that these “proof of reserves, at least in the form they’ve been suggested, have too many shortcomings to inspire confidence.”
Crypto firms are planning to use merkle trees to produce proof of reserves which can be efficiently stored and accessed. However, the Bank of America has noted several shortcomings when it comes to the usage of merkle trees and stated that the assets are shown at a fixed point in time and as a result, the data can be manipulated. For example, certain foul actors can borrow assets right before the snapshot is taken.
According to the bank, proof of liabilities is required as well, in order to determine leverage and the safety of assets. However, proof of reserves often rely on third party audit firms that can be manipulated easily or “may even be created by the trading platform itself,” the note added.
Bank of America says that stablecoin reserves need to be audited as well and not just displayed. Interestingly, the bank stated that regulations are a must in the crypto space given that the collapse of FTX wiped off billions from the crypto space.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
