MPC Revolution During the Evolution of Global Financial Regulation

On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved exchange-traded products (ETPs) for spot Bitcoin trading. Three months later, on April 30, the Hong Kong Bitcoin spot ETF and Ethereum spot ETF will officially debut on the Hong Kong Stock Exchange, marking their first trading day. The Australian Securities Exchange (ASX) is expected to approve listing a Bitcoin spot ETF on the main board by the end of 2024.

Since its inception in 2009, blockchain technology has gained popularity in the financial market and industry due to its innovative qualities. With its speed, security, complete anonymity, and decentralized nature, blockchain is the answer to many problems in the financial sector.

The global financial system has become increasingly complex and cumbersome, filled with third-party interventions. Therefore, by 2009, blockchain solutions were a perfect fit for the financial market.

Benefits of Blockchain in Banking Regulation

The emergence of blockchain technology fills the gaps in the global financial ecosystem, addressing issues such as bureaucracy, lack of privacy protection, and high costs. International transactions, which used to take several days to complete with high costs and lack of privacy protection, have been revolutionized by blockchain technology. It leads financial entities to adopt overly complex financial practices, increasing the burden on traders, investors, and businesses. The emergence of blockchain technology has changed this situation. Through blockchain, transactions have become faster and more efficient, and the automation of smart contracts has provided convenience for financial services. Furthermore, the anonymity and security provided by blockchain technology have enhanced privacy protection in financial transactions. Most importantly, blockchain technology has significantly reduced transaction costs, driving the development of the financial sector.

While the benefits of adopting blockchain seem endless, we must also mention some risks and drawbacks that could negate the entire blockchain solution. Remember, this is still a new technology, and many uncertainties are ahead.

The Dilemma in Blockchain and Banking Regulation

The most crucial consideration is regulatory intervention in the blockchain. The inherent anonymity of this digital technology means that there can be a significant amount of criminal threats and illicit behavior. After all, anonymity is two-sided — it accommodates legitimate clients but also allows malicious individuals to manipulate and sometimes even engage in criminal activities.

Therefore, regulatory oversight in the cryptocurrency space is not surprising. In fact, regulatory oversight is crucial for the regular operation and risk-free operation of this industry and technology. However, judging whether these regulations will become overly strict is almost impossible. Due to the large number of fraud cases and other harmful activities, governments worldwide have strengthened their regulatory measures on blockchain.

For most large retail and investment banks, blockchain technology only makes sense when applied to large, scalable networks. We see the release of private banking networks like Information Network (IIN) and Utility Settlement Coin (USC), with 365 members and participants, including Credit Suisse, ING, and UBS, which will ultimately provide backend transaction processing and reconciliation services between banks. However, this new paradigm of business models also has some problems, mainly the increase in data privacy and security requirements after using blockchain and the difficulty of achieving security and compatibility in a truly decentralized manner.

MPC Get Involved

Secure multi-party computation (MPC ) is a method of computing functions where the inputs to the function come from mutually distrusting users. MPC needs to compute the value of the function without revealing the inputs (i.e., protecting their privacy). The media has been hyping privacy-related technologies lately, such as zero-knowledge proofs, but MPC is a niche technology that fills the space not covered by other technologies. After all, zero-knowledge proofs are just a particular case of so-called two-part computation. At the same time, MPC can be extended to calculate the value of functions within minutes with thousands of participants, as proven by leading MPC vendors like Ligero. Moreover, secure MPC has significant benefits, including correctness, better privacy, independent inputs, fairness, and output delivery guarantees.

For example, major custody providers such as Fidelity, Northern Trust, New York Bank, U.S. DTCC, and Bakkt can use MPC to provide evidence of private fund existence without revealing details and amounts. A portion of the authorized entities can authorize transactions, such as three-fifth of regulatory agencies, two-thirds of customers, and three-fifth of custody compliance managers. Thus, authorization can be obtained from eight out of thirteen members to complete the signing process.

Wallet providers like BitGo and Coinbase can benefit from giving up current cold storage or hardware security module solutions in favor of MPC. MPC is more secure, faster, and easier to use than current multi-signature wallets. MPC avoids the single point of failure problem. Besides that, MPC has its unique advantages in applying in enterprise-level asset management.

Both traditional and digital asset exchanges (such as NYSE, NASDAQ, Coinbase, and Binance) may share KYC-secure numbers with each other while also securely reporting trading activity to external regulators. In particular, cryptocurrency exchanges can also use MPC instead of cold storage, thereby providing instant asset redemption and increasing trading volume and customer satisfaction.

New business models may emerge as significant cloud infrastructure providers (such as Amazon Web Services (AWS) and Microsoft Azure) can create new business models because MPC can provide large-scale security-as-a-service and privacy services in various niche markets and vertical markets.

Utilizing MPC technology in regulation is getting popular, as evidenced by the fact that in the FCA’s TechSprint anti-money laundering agency applications received, MPC-based startups accounted for the majority.

MPC can be used with machine learning (ML), which is applicable when processing large amounts of transaction or KYC data between financial services companies, custodians, brokers, and regulators. As a result, using MPC in a data-driven and privacy-friendly manner can help detect fraudulent activity involving early participation, thereby saving a lot of resources.

Using secure MPC will make hardware security modules (HSMs) obsolete, as HSMs are expensive and slow and provide a trusted execution environment. HSM products also need help with security and scalability. Venture capitalists have a strong demand for companies focused on MPC, and we have seen a steady increase in the number of startups focusing on MPC research and services, such as Ligero mentioned earlier, as well as CURV and Unbound. Whose focus is also on the MPC space.

At the forefront of financial regulation, MPC technology is rapidly emerging as a powerful tool to ensure the security and privacy of the financial system. With the widespread adoption of blockchain technology and the continuous development of the cryptocurrency market, the prospects for applying MPC are becoming broader. MPC provides a higher level of security and privacy protection and opens up new possibilities for data sharing between financial institutions and regulatory agencies.

HyperBC (Book a Demo ) provides thorough MPC service in securing crypto assets. Through MPC, financial regulation can be more efficient in activities such as anti-money laundering and counter-terrorism financing while ensuring data security. Therefore, the combination of MPC and financial regulation will play an increasingly important role in the future of financial technology, bringing a safer and more efficient future to the financial industry.

About HyperBC

HyperBC stands as a market leader in digital asset custody and payment solutions. Catering to businesses seeking a secure and efficient transition to Web3 transformation, ensuring the security of assets and We are committed to the mission of “ fostering financial freedom.” In line with this objective, we provide asset owners with a complete range of services, encompassing asset custody, merchant payments, clearing and other financial services.

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