{"id":371797,"date":"2021-11-24T17:47:00","date_gmt":"2021-11-24T14:47:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/deterring-adoption-balancing-security-and-innovation-in-crypto\/"},"modified":"2021-11-24T17:47:00","modified_gmt":"2021-11-24T14:47:00","slug":"deterring-adoption-balancing-security-and-innovation-in-crypto","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/deterring-adoption-balancing-security-and-innovation-in-crypto\/","title":{"rendered":"# Deterring adoption? Balancing security and innovation in crypto"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a35ffceb7c0a\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a35ffceb7c0a\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/deterring-adoption-balancing-security-and-innovation-in-crypto\/#Is_self-regulation_a_viable_alternative\" >Is self-regulation a viable alternative?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/deterring-adoption-balancing-security-and-innovation-in-crypto\/#Do_decentralized_exchanges_pose_a_threat\" >Do decentralized exchanges pose a threat?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/deterring-adoption-balancing-security-and-innovation-in-crypto\/#Fundamental_crypto_rights\" >Fundamental crypto rights<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Deterring adoption? Balancing security and innovation in crypto <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMTEvNWMxMzUyNGEtMTdjYS00NGMyLTljYjctNTMxODYyYjdkY2NiLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-128018ef>The cryptocurrency space moves rapidly, so much so that every year, there\u2019s a new trend: from initial coin offerings (ICOs) to nonfungible tokens (NFTs) only a few years have passed. In the face of such astounding innovation, crypto companies and regulators face a growing challenge: balancing security practices with new products and features.<\/p>\n<p>Some companies\u2019 <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roach is to move fast and adopt new innovations as they become available, leaving security processes such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks as a secondary objective. Popular cryptocurrency exchange Binance seemingly used this strategy up until this year when regulators started cracking down.<\/p>\n<p>Binance\u2018s KYC policies initially allowed users who did not fully verify their identities to withdraw up to 2 BTC per day. The exchange listed margin trading pairs with major fiat currencies and allowed leverage up to 125x from its futures trading platform, but had to reduce available leverage and delist margin trading pairs when it reportedly started being investigated by the United States Internal Revenue Service and Justice Department.<\/p>\n<p>The exchange has since taken a compliance-friendly approach to its business and has implemented mandatory KYC processes for \u201cglobal users, for every feature.\u201d The move saw it lose around 3% of its total user count.<\/p>\n<p>While Binance was forced to remove some of its offerings and scale down leverage on its platform, other exchanges are still providing users with these same products. Speaking to Cointelegraph, Yuriy Kovalev, CEO of crypto trading platform Zenfuse, noted finding regulations that allow compliant companies to compete is a challenge that needs to be addressed:<\/p>\n<blockquote><p>\u201cFinding a way to balance regulation that protects investors and innovation is hard, especially in a space where new financial offerings appear every few months.\u201d<\/p><\/blockquote>\n<p>Speaking to Cointelegraph, CEO of cryptocurrency exchange Bittrex Stephen Stonberg pointed out that cryptocurrency regulations are now \u201cquite complex\u201d and are being handled differently in different jurisdictions<\/p>\n<p>Stonberg implied that customer safety should nevertheless remain a priority as \u201cmore robust and clear-cut regulation \u2014 like in the traditional financial sector \u2014 is needed to really ensure client assets and data are safe and secure.\u201d As an example, Stonberg pointed to Liechtenstein\u2019s Blockchain Act, which \u201cprovides a lot more certainty and clarity around how an exchange needs to onboard new clients and protects a clients\u2019 assets.\u201d<\/p>\n<p>Regulatory clarity is seen as a necessity by some players in the industry, as without it, innovation may be left behind. In a recent blog post, Nasdaq-listed crypto exchange Coinbase noted that its plans to launch a lending program were halted by the U.S. Securities and Exchange Commission (SEC), which threatened to sue it \u201cwithout ever telling [them] why.\u201d<\/p>\n<p>Coinbase said it attempted to \u201cengage productively\u201d with the SEC but never received clarification on the SEC\u2019s reasoning or on how it could alter the product for it to be compliant. A proposed alternative has involved leaving regulators out of the picture. The Commissioner of the Commodity Futures Trading Commission (CFTC) Brian Quintenz has championed this alternative, at one point<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.coindesk.com\/cftc-commissioner-says-agency-backs-innovators-at-yahoo-crypto-event\"> calling<\/a> for cryptocurrency exchanges to regulate themselves, echoing the sentiment of many in the industry.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Is_self-regulation_a_viable_alternative\"><\/span>Is self-regulation a viable alternative?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The concept isn\u2019t new: Organizations like the Financial Industry Regulatory Authority (FINRA) have helped enforce initiatives meant to protect securities investors with brokers and broker-dealer firms. In Japan, a self-regulatory body for the country\u2019s crypto exchange sector, the Japanese Cryptocurrency Exchange Association (JCEA), has been formed.<\/p>\n<p>Stonberg does not believe the answer is down the self-regulatory path, as the \u201ccomplex nature of this digital ecosystem makes regulation tricky.\u201d To him, self-regulation would mean \u201cunwinding\u201d all of the hard work achieved on the regulatory front for crypto and \u201cre-complicating the regulatory environment, putting a block in progress.\u201d<\/p>\n<p>The pseudonymous founder of Flare Network-based decentralized finance (DeFi) platform Flare finance CryptoFrenchie told Cointelegraph that he believes in the \u201cabilities of decentralized platforms and centralized platforms alike to deliver a self-regulated environment that reacts effectively to meet (or exceed) the needs of modern-day regulatory requirements.\u201d<\/p>\n<p>The DeFi project founder added that current systems have \u201cproven to be incapable of meeting the needs of the current financial system,\u201d and added:<\/p>\n<blockquote><p>\u201cTo apply these same systems to an even more fast-paced environment like crypto could prove to be more stifling to its potential than supportive.\u201d<\/p><\/blockquote>\n<p>Founder and CEO of crypto exchange CEX.IO Oleksandr Lutskevych suggested self-regulation may be an option, saying that in the firm\u2019s experience, self-regulation is the answer \u201cwhen there is an absence of an applicable regulatory framework.\u201d Speaking to Cointelegraph on his firm\u2019s path, Lutskevych said:<\/p>\n<blockquote><p>\u201cUntil a framework for cryptocurrencies was formalized in certain countries, we adopted a self-regulation approach, implementing best practices from other leading financial organizations.\u201d<\/p><\/blockquote>\n<p>Cryptocurrency platforms, both centralized and decentralized, should \u201cseek to analyze their own systems and develop modules specifically designed to deliver the needs of current regulatory systems,\u201d said CryptoFrenchie.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Do_decentralized_exchanges_pose_a_threat\"><\/span>Do decentralized exchanges pose a threat?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>While the debate on self-regulation continues, another one has grown over decentralized trading platforms and their impact on the market. Non-custodial decentralized exchanges allow users to trade directly from their wallets, often without even registering with an email address.<\/p>\n<p>Some critics have argued that decentralized exchanges (DEXs) make centralized platforms\u2019 KYC and AML efforts worthless, as bad actors can carry out their illicit activities through these platforms. Others suggest DEXs, even those run through decentralized autonomous organizations (DAOs), can improve their transparency to help blockchain sleuths and law enforcement organizations find illicit transactions.<\/p>\n<p>To chief investment officer of digital asset investment firm Arca Jeff Dorman, decentralized applications (DApps) and other projects can contribute to the safety of the cryptocurrency space. Speaking to Cointelegraph, Dorman said the industry needs to set standards, adding:<\/p>\n<blockquote><p>\u201cCompanies and projects need to recognize the importance of setting up transparency dashboards, and analysts across the industry need to roll up their sleeves and do the dirty work of bringing transparency to projects that are not doing it themselves.\u201d<\/p><\/blockquote>\n<p>Bittrex\u2019s Stonberg pointed out that the \u201cbest way to conceal illicit activity isn\u2019t cryptocurrencies, but old-fashioned money.\u201d The CEO added that blockchain-based transactions are \u201cmore traceable than any other financial activity.\u201d<\/p>\n<p>Stonberg told Cointelegraph that he believes decentralized exchanges should build AML and KYC policies that they can implement, but added that the industry is \u201cstill in the early stages of seeing how decentralized exchanges will play out.\u201d<\/p>\n<p>Lutskevych suggested that tools that can track the origin and previous history of crypto assets could one day be used in decentralized exchanges to keep illicit funds out of their platforms. He noted that \u201cbasic information can be traced\u201d on the blockchain, although that data is \u201cfar afield from what the Financial Action Task Force guidance requires of centralized exchanges to gather.\u201d Lutskevych added:<\/p>\n<blockquote><p>\u201cDecentralized mechanisms that can prevent funds of illegal origin (money laundering, ransomware, hack) from entering a DEX with a protocol\u2019s smart contract are currently being explored and developed.\u201d<\/p><\/blockquote>\n<p>Lutskevych concluded that it is possible for decentralized platforms to leverage KYC and AML procedures to address regulators\u2019 concerns. He noted that implementing KYC by itself may not be enough to deter illicit activities and protect users.<\/p>\n<p>Raj Badai, founder and CEO of DeFi and traditional banking services bridge Scallop, told Cointelegraph that the growth of the decentralized finance industry poses a challenge for regulations, but suggested that a solution could be a \u201cregulated blockchain.\u201d Referring to products in development, Badai said:<\/p>\n<blockquote><p>\u201cWe can ensure that wallets on a blockchain undergo a KYC\/KYB process. This means that the account holder is identified and that all funds on the chain can be traced \u2014 ultimately creating an inhospitable environment for illicit activities and deters it right from the beginning.\u201d<\/p><\/blockquote>\n<h2><span class=\"ez-toc-section\" id=\"Fundamental_crypto_rights\"><\/span>Fundamental crypto rights<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Binance has recently seemingly weighed in on the subject by publishing what it called \u201cfundamental rights for crypto users.\u201d The exchange argued that every human being should \u201dhave access to financial tools\u201d that \u201callow for greater economic independence.\u201d It also noted that \u201cresponsible crypto platforms have an obligation to protect users from bad actors\u201d and implement KYC to \u201cprevent financial crimes.\u201d<\/p>\n<p>Commenting on Binance\u2019s crypto rights push, Lutskevych suggested that the move was an \u201cadvertising campaign\u201d from a company \u201cthat didn\u2019t start touting these values until very recently,\u201d making it more of a \u201cmarketing strategy.\u201d<\/p>\n<p>Through a website <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/yourcryptorights.com\/\">dedicated<\/a> to crypto users\u2019 fundamental rights, Binance called on industry leaders, regulators and policymakers to \u201chelp shape the future of global finance together.\u201d The exchange added that it believes it should be \u201cup to each nation\u2019s policymakers and their constituents to decide who should have oversight over the industry.\u201d<\/p>\n<p><strong><em>Related:\u00a0The stablecoin scourge: Regulatory hesitancy may hinder adoption<\/em><\/strong><\/p>\n<p>Crypto, Binance wrote, belongs to everyone. While the exchange believes that regulations are inevitable, any policymaker tasked with overseeing the space has a monumental task to perform, as keeping bad actors at bay without stifling innovation has so far proven to be a challenge.<\/p>\n<p>The strategy cryptocurrency companies seemingly agree on is based on cooperating with regulators to find solutions that won\u2019t stop users from having access to innovative digital currencies or services created within their ecosystem. Regulators\u2019 lawsuits against large crypto firms appear to show only one side is happy to cooperate.<\/p>\n<p><template data-name=\"subscription_form\" data-type=\"law_decoded\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/deterring-adoption-balancing-security-and-innovation-in-crypto\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Deterring adoption? Balancing security and innovation in crypto &#8221; The cryptocurrency space moves rapidly, so much so that every year, there\u2019s a new trend: from initial coin offerings (ICOs) to nonfungible tokens (NFTs) only a few years have passed. In the face of such astounding innovation, crypto companies and regulators face a growing challenge:&#8230;<\/p>\n","protected":false},"author":1,"featured_media":371798,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMTEvNWMxMzUyNGEtMTdjYS00NGMyLTljYjctNTMxODYyYjdkY2NiLmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74894,74355,70934,72287],"class_list":["post-371797","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-blockchain","tag-adoption","tag-regulation","tag-security"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/371797","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=371797"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/371797\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/371798"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=371797"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=371797"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=371797"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}