For the cryptocurrency industry, 2022 was a
year of immense upheavals, causing governments, consumers, and other associated
stakeholders to question the debated topics of trust, credibility, and user
protection in the cryptocurrency industry.
Overall, this has created a need for
organizations and leaders within the space to consistently reiterate their
commitments, as well as demonstrate their initiatives geared towards building
trust, ensuring user fund transparency, and fostering user safety.
However, it is important to note that while
the events from last year have permeated a sense of short-term distrust, the
overwhelmingly undeniable truth is that crypto is here to stay - a testament to
the innumerable applications of cryptocurrencies and blockchain technology,
especially in terms of improving financial inclusion and its simplification of
borderless payment transactions.
Moving
ahead with user fund transparency
Perhaps, the most worrisome question on the
minds of crypto users and investors is “Will my money be safe?” This
inclination is entirely expected for a plethora of reasons. To avert the
feelings of fear, uncertainty, and doubt (FUD),
there is an undeniable need for reassurances that guarantee crypto users
and investors the protection and financial security they require.
For one, user funds must never be mismanaged
and all measures must be maintained to keep user funds secure. Exchanges should
follow three very simple rules: hold user assets in custody 1:1, never trade
against your users, and don’t take on debt.
The cryptocurrency industry needs to
prioritize user protection and allocate resources accordingly, focusing on
ensuring security and maintaining transparency. To achieve this, many exchanges
have taken the initiative by publicly sharing wallet addresses and reserve
proofs, as well as creating recovery funds.
Proof of
reserves is considered one of the most effective methods of increasing the
transparency of user funds in cryptocurrency exchanges. Users have the right to
verify the safekeeping of their assets held in a centralized exchange’s custody
and the presence and nature of reserve assets on an exchange provide insights
into the platform's operation; one of such reserves is Binance’s proof-of-reserves.
Additionally, education must be prioritized as
users need to better understand the different crypto offerings on the market –
so they can distinguish which ways are safe to enter and what actually makes
certain crypto offerings trustworthy and reputable.
All exchanges must dedicate resources to
provide their users with sufficient knowledge about their products, services,
and the broader industry. Materials should clearly explain the risks associated
to enable users to make informed choices. These efforts will continue to help
rebuild trust within the industry and support future innovation.
Regulatory
compliance is key
The
importance of adhering to regulatory standards in establishing stability,
credibility, and confidence in cryptocurrencies is often overlooked by some as
they believe it hinders the underlying innovation that drives the crypto
industry.
However,
smart regulation is beneficial to the safe custody of cryptocurrency and crypto
providers must further shoulder the responsibility by engaging in open and
ongoing communication about the structure of their products and the regulations
that govern them. Like seatbelts in a car, a more regulated crypto market
provides greater protections for everyday users.
Another
key lesson from the past year is that regulation can play a crucial role in the
revival, long-term success, and broader acceptance of cryptocurrencies,
particularly in growing markets. By providing safety and peace of mind for
users and conferring legitimacy, regulation can help restore the industry's
image and renew consumers' trust in cryptocurrencies. After all, institutional
interest will follow where regulation goes, further proving the value and
legitimacy of the crypto industry.
To conclude, given the rapidly changing nature
of the crypto industry and its protocols, it is imperative for the industry to
collaborate and establish standards for the quality of security measures for
exchanges and projects. Collaborating with law enforcement is crucial in order
to support investigations and retrieve stolen funds. In addition, developing
better incubation programs to equip new projects with adequate security
measures is essential.
By: Nadeem ANJARWALLA
