Reflections on My Chat with Linda Jeng
By Ajay Shamdasani, host, Regulatory Ramblings Podcasts *
On episode #47 of Regulatory Ramblings podcasts, I had the opportunity to chat with Linda Jeng for HKU’s Regulatory Ramblings podcast.** Linda is the founder & CEO of Digital Self Labs, a Washington D.C.-based Web3 advisory firm and our discussion stemmed from an op-ed piece she wrote for Coindesk in March entitled “The Biggest Bank Heist in History Is Coming.”
The premise of her piece was that given statements by US regulators earlier this year, the battle between open, permissionless blockchains and closed, permissioned networks is well underway – all at a time when regulators are permitting banks to tokenize bank deposits as digital money. Yet, concurrently, market watchdogs are pressuring banks to use private permissioned networks, which are more vulnerable to cybersecurity attacks, rather than public, decentralized blockchains.
Linda said it best on her LinkedIn page: “We should be building public digital infrastructure for the common good instead of embedding new vulnerabilities into our digital economy because they preserve the status quo.”
She reiterated that encouraging the use of permissioned networks over permissionless blockchains will inevitably lead to cybersecurity attacks “on a scale previously unknown as the financial system moves to tokenize trillions of dollars’ worth of real world assets and liabilities. The biggest bank heist in history is in the making.”
As Linda said in her article: “In February, the Office of the Comptroller of the Currency’s acting head Michael Hsu announced plans for new rules on operational resilience for large banks with critical operations, including third-party service providers. Critically, what was not discussed was that the planned rules would require "the use of permissioned networks by the big banks to tokenize real world assets and liabilities, an omission that neglects critical new vulnerabilities for the global financial system.”
“By contrast, most successful crypto hacks usually involve centralized protocols where hackers only need to hack the admin keys of only one or a few actors to gain control and steal digital assets. Similarly, permissioned networks are controlled by only a few parties, so they can be more easily hacked than blockchains maintained by thousands of validators. The concentration of attack vectors in the big banks that control these permissioned networks (or the central banks that control non-blockchain ledgers) is like sticking targets on their backs,” she said.
Certainly, the biggest regulatory challenge seems to be a lack of understanding about the benefits of decentralization.
Perhaps more critically, however, the nature of money is changing – these are exciting times in the world of FinTech: and the debate has moved on from even just five years ago. Virtual assets may not be the stuff of mainstream finance in any significant way, yet, in that time, they have been accorded a degree of respectability and acceptance that I would not have envisaged. Attitudes have most definitely changed and people are open to the possibilities of different ways to transact.
A point that resonated with me from our conversation when we discussed fractional reserve banking, and the role of private sector stablecoins and central bank digital currencies was that there is a role for both as they serve different purposes. Yet, as Linda pointed out, design will be key to their implementation.
She also stressed the self-empowerment and taking back personal agency from the big tech firms in the form of personal data rights. Moving forward, she said, the future should be restoring personal control over one’s identity and assets on the Web.
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