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 organisations and leaders within the space to consistently reiterate their commitments, as well as demonstrate their initiatives geared toward building trust, ensuring user-funds transparency, and fostering user safety.
However, it is important to note that while the events from last year have generated 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-funds transparency
Perhaps the most worrisome question on the minds of crypto users and investors is, “Will my money be safe?” This reaction 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 prioritise 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 centralised 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 prioritised 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 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 this 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 that responsibility by engaging in open and ongoing communication about the structure of their products and the regulations governing them. Like seatbelts in a car, a more regulated crypto market provides greater protection 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 while 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 programmes to equip new projects with adequate security measures is essential.