Institutional investors have been one of the key goals for the cryptocurrency sector. You’d think it was the Second Coming, the amount people talk about it.
But what are the ramifications? According to Jackson Palmer, one of the main developers behind Dogecoin (DOGE), the time of the institutional investors won’t be one of adoption, but of invasion. It could attack the fundamental tenets of the space.
Palmer argues that most of the enthusiasm for the traditional financial services entering the space is misguided. In an opinion piece published today for Diar, a digital asset newsletter, he argues that institutions will take cryptocurrency away from its ideological roots.
They will directly challenge and overturn many of the sector’s efforts to decentralize.What’s wrong with the crypto institutional investor?
Palmer notices a “concerning trend,” in which institutions – like Coinbase – are starting to become the de facto gatekeepers of blockchains. This not only puts them in a position of power, as Coinbase can suspend or remove users accounts on an in-house decision – it also presents a vulnerability.
If key exchanges were attacked, there would be repercussions across the entire sector. “If Coinbase.com is hijacked or taken offline, a user relying on that provider essentially loses their access to the decentralized Bitcoin network,” Palmer wrote.
Convenience and usability stand at the heart of what Palmer sees as the institutional takeover of crypto. Transaction volumes are increasing, but instead of taking place ‘on-chain’, many are now taking place on private servers or through OTC desks. Although this keeps prices steady, there’s also the concern that transactions are no longer verifiable.
Similarly, Palmer points out that many are already beginning to offer ‘secure’ custodial services, for users to store their cryptocurrency holdings. Coinbase, Bakkt and Fidelity all offer some sort of storage service. Ma...