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Crypto Exchanges Transparency Brings Peace in Investors' Mind


Vance Carver, Denis Goncharenko

Nine years ago cryptocurrency industry was a Wild West, where outlaws could roam around without control. No regulatory bodies seemed to have interest towards the demand of transparency and supervision in exchanges. However, the community itself developed industry-standards and expectations during the past years. Things started to change.

Finding a way between Scylla of Risks and Haribda of Regulations

In some ways, a lack of regulation can be a good thing, as it lets industries exert their own autonomy and naturally grow, however it also means that simple actions can become dangerous. For example, the act of using an exchange such as Mt. Gox cost some users all their funds. Not just was this an issue regarding lack of regulation, but also lack of transparency. Nobody knew exactly what was happening as the exchanges deliberately kept people in the dark. This meant that only a handful of people were able to notice suspicious behaviour. A similar situation also happened years later with Coincheck, where a significant amount of NEM was stolen from traders.

The outcome of this behaviour was that people demanded more transparent services so that the problem could be avoided in the future. It led to an emergence of newer exchanges like Gemini which focuses on regulation, and RightBTC which works on transparency with its users. These are the next generation of exchanges, and they are moving the industry toward a fairer and more welcoming system.

The significance of transparency: no cheating allowed anymore!

While it may not seem like much, transparency goes a long way in creating loyal customers. Crypto users evaluate transparency highly as it is one of the most prominent elements of blockchain technology. Almost all blockchains are entirely transparent, in stark contrast to other financial tools. Having an exchange which is also engaged in transparency means that it aligns itself with the methods of the coins and tokens supported.

Nowadays, transparency is a given within the crypto community. Traders and investors can regularly check data from different exchanges against data from the entire market to make sure that everything is accurate. Information of this kind is regularly collated by organisations such as the Blockchain Transparency Institute. In August, they created an initial exchange rankings report which shed light on the actions of the top 131 exchanges. To pull a couple of examples from the data, it reveals that Poloniex (for instance) has 48,333 unique visitors per day, COSS has a direct access of 0.67%, and that RightBTC has a claimed volume of $16,398,671.

Next stop: transparent regulation

Daniel Wager is a vice president of LexisNexis Risk Solutions, the data science company. He formerly worked in the New York High Intensity Financial Crime Area, where he supported money laundering and terrorism finance investigations and was a Supervisory Special Agent at the U.S. Department of Homeland Security, as well as a Special Agent with the U.S. Customs Service, Department of the Treasury. He considers transparency to be the great milestone crypto world needs to reach.

“When it comes to cryptocurrencies, businesses and exchanges have to decide what level of transparency into transactors and transactions they will insist on and find appropriate solutions. This is required for regulated entities to meet regulatory concerns around money laundering, fraud and economic sanctions, but all businesses and exchanges handling cryptocurrency have exposure in these spaces as well. Given the relative newness of cryptocurrencies, “know your customer” procedures and best practices are still a bit murky. But with the number of coin offerings growing at extraordinary rates, regulatory regimes and industry practices will have to mature in a hurry. In the current climate, cryptocurrency is a ripe target for illicit financiers, and legitimate actors in the crypto space don’t want to facilitate criminal activity. Transparency is paramount in all this, both for the comfort of the exchange and the customer.”

Crypto world learns on its own mistakes

The crypto industry might still be relatively new, but within the space of just under a decade, its community and ecosystem has banded together to explain exactly what they expect of exchanges, and has made sure to steer them in the right direction. While it is possible that regulation and transparency would have come to the crypto industry eventually, it was due to the acts of Mt. Gox, Coincheck, and other rogue platforms that these ideals have been brought to the forefront faster.




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