by Jake Wengroff
For all the talk about the strength of the blockchain, about a fifth of all bitcoin issued, or around $20 billion, has been lost — most of it permanently — according to the Wall Street Journal.
Investors in bitcoin and other cryptocurrencies might not be scared off by wild price volatility. Instead, what they fear is a hack — not of the blockchain but rather of the underlying wallets, exchanges, e-commerce sites and platforms where crypto assets are stored or used in transactions. In this article, we’ll explore why this threat looms so large, and what establishing a title database could do to help shore up proof of ownership when it comes to crypto assets.
Bearer Assets and Their Owners
Cryptocurrency is a bearer asset: Whoever holds the private key is considered the owner. This can make it extremely hard to demonstrate proof of ownership should a private key be stolen or lost.
While crypto owners know to keep their private key safe, and while crypto wallets and exchanges have stepped up their security measures, hackers have had years to develop rather sophisticated workarounds. A screenshot, a series of keystrokes, a USB drive, or a compromised WiFi router could lead a hacker to a treasure trove of private keys that are not properly safeguarded.
This security and custody issue is perhaps one of the biggest reasons why large institutional investors have been slow to adopt cryptocurrency — and is one of the biggest reasons why establishing title for cryptocurrency may be necessary for wide-scale adoption.
Title Registries for Other Asset Types
Title registries exist for other asset types, and were created to protect buyers and sellers from misinformation and in certain instances, fraud. This is because title companies create a single, maintained list of information that can serve as a “single source of truth” that parties can rely on to prove ownership of particular assets.
The Securities and Exchange Commission in the U.S. mandates that publicly-traded companies maintain a shareholder register, or a list of all active and former owners of a company’s shares. According to the Corporate Finance Institute, the register must include details of shareholders, such as their name, address, the number of shares they own, class of shares held, date when they became a shareholder, and when they ceased being a shareholder.
Such a registry of stockholder information not only helps the corporation better understand its ownership but it also protects investors in the event of a liquidity event.
Cities and municipalities keep records of the legal ownership of real estate, land, and other types of property. A title search is an examination of public records to determine and confirm a property’s legal ownership, and find out what claims or liens might exist on the property. According to Investopedia, the attorney or title company conducting a title search will perform research using public records and legal documents to identify the vested owner, the liens or other judgments on the property, the loans on the property, and the property taxes due.
While real estate transactions are not regulated at the federal level, local real estate and land title registries help those interested in purchasing property by providing accessible, public, and verifiable information. The integrity of a transaction would rely on the integrity of the underlying data held in the title registry.
Even the titles to motor vehicles are kept in a national registry, the National Motor Vehicle Title Information System, operated by the U.S. Department of Justice. The registry is designed to protect consumers from fraud and unsafe vehicles and to keep stolen vehicles from being resold.
Does Crypto Need a Title Registry?
With the surge in ownership of bitcoin and other cryptocurrencies, why doesn’t a global registry yet exist?
Accessing an optional, third-party, trusted title registry will mitigate the limitations that a bearer asset causes for many individuals and institutions concerned about the current inability to prove ownership of crypto assets.
In the interim, service providers like TransitNet are developing solutions to help asset owners prove the value of their crypto that go beyond transferring a small amount of crypto or signing a message with a private key. As the use of bitcoin and cryptocurrencies proliferates, changing hands with much more frequency through various digital channels, a single registry that all can trust is in order.
Adding Title to Crypto in Order to Prove Rightful Ownership
Indeed, the industry is in need of infrastructure to verify the rightful ownership of cryptographic assets. TransitNet is currently developing the industry’s first offchain, accessible record of crypto currency ownership for digital wallets. This title registry will create an additional layer of protection and record-keeping for cryptocurrency assets, supporting investors and others using crypto for several types of transactions, including exchange for fiat currency and issuing credit and loans.
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.
The Wall Street Journal – A Fifth of All Bitcoin is Missing. These Crypto Hunters Can Help.
Blockchain Innovation Group – Proving ownership of cryptocurrencies
Investready – Verifying Crypto Assets