Since its inception, cryptocurrencies have gone from strength to strength, with widespread evidence that the use of digital currencies is increasing year by year. Last year in particular saw a huge influx of users into the crypto space, with the total number of unique users increasing by a whopping 178% from 106 million in January to 295 million at the end of 2021. In the same time frame, we saw the leading tokens rise to new highs of all time, which undoubtedly helps attract many of these new investors to the space. This rapid adoption has catapulted the industry into mainstream consciousness and has begun to spark new conversations about the multitude of benefits and uses these new digital assets can bring to society on a global scale.
Now, nearing the end of 2022, it’s safe to say that the crypto landscape is completely different from what it was a year ago. Events such as the Terra-Luna crash, Celsius halting withdrawals on their platform and the collapse of FTX have shaken the industry and crypto skeptics may be more present than ever before. However, despite what could be considered negative sentiment surrounding the industry, the cryptocurrency user base has defied the odds and continued to grow, with recent estimates claiming global cryptocurrency ownership now exceeds 320 million — or approximately 4.2% of the world’s population.
Moreover, institutional interest in crypto is stronger than ever. Every major bank now has a significant crypto desk and there is almost no fund manager that does not include or is considering including crypto in their portfolio. On the M&A side, institutions are looking to move or expand further into the space by making bargain offers to launch their own strategies.
On the retail side, while we’re clearly no longer experiencing the seismic growth we witnessed in 2021, the fact that there was growth at all in the harsh conditions of the so-called “Crypto Winter” is a testament to the industry’s resilience and the strong, enduring roots established over its relatively short history. Nevertheless, with increased adoption comes increased scrutiny, and recent events have undoubtedly served to draw attention to some specific areas – notably regulation, education and innovation, and security – that need urgent attention to cement cryptocurrencies as a mainstay of the modern economy.
Knowledge is power
If we truly want to bring cryptocurrencies to the masses, it is of the utmost importance that newcomers to the industry, long-term players, and crypto skeptics alike are educated about the risks and rewards, as well as the potential pros and cons. The burden of this educational responsibility falls on key players within the industry. These are the entities that dominate the discourse in the field and drive the industry forward — and accordingly have an inherent responsibility to educate and inform their audience both about the existing landscape and the new developments that are materializing.
It is imperative that these key players not only provide comprehensive information about the relevant services they provide, but also strive to simultaneously innovate and improve the specific sector of the industry they operate in to benefit their consumer base while cementing the long-lasting benefits of blockchain technology. in general. In doing so, it is crucial that proactive efforts are made to adapt to industry developments. Educating and informing crypto-curious individuals about the many benefits of these emerging technologies, which are evolving day by day, is therefore crucial. All too often, enthusiasts tout the “democratization” of finance that crypto offers, then effectively turn off ordinary people by misleading them with a litany of jargon and post cards seemingly designed to confuse.
Open communication about products, services and developments gives potential customers a better basis for making a decision to invest in cryptocurrencies, insight into the inherent risks involved in investing in general, and an increased ability to discern the underlying value associated with any given product that could make it a profitable option. long-term investment — and all this facilitates more favorable interactions with the market for all parties involved.
Raising standards through regulation
In tandem with this, regulation will be a key factor in ensuring that those who have entered the market stay as we journey into the future. Recent events have highlighted that regulation will be indispensable in guaranteeing adequate safeguards to protect the interests of consumers and investments in times of crisis. Consumers expect it, and governments will insist on it. This will not only benefit investors, but also trading platforms, as extensive legislation can foster a level of trust and legitimacy comparable to that currently enjoyed by TradFi institutions on these platforms.
This, of course, does not rely only on empty words. “Regulation” must be something that all crypto participants actually do, not a series of post cards or talking points. Smart consumers should learn to ask themselves what it means when an exchange says they are “regulated.” Where are they regulated and who regulates them? And according to what standard? What is my compensation if something goes wrong? These are questions that exchanges truly committed to high regulatory standards can easily answer, and will show those who use the appearance of regulatory language to distract from their reality.
The more these questions are raised – by consumers, journalists and governments – the easier it is for crypto exchanges to compare and contrast, with those that are proactive and compliant with legislative practice demonstrating a commitment to prioritizing customer concerns over internal interests. Frankly, you wouldn’t put your money in a bank that circumvents regulation, so there’s no reason to expose yourself to this risk by putting it in an unregulated exchange — or worse, an exchange that only deals with regulation to keep up appearances.
Finally, security will additionally prove to be fundamental in sustaining and encouraging the use of cryptocurrencies. This is an area that cryptocurrency exchanges in particular must place significant emphasis on, to ensure that users are protected from fraud and hacking and can rest easy at night knowing that their funds are safe from cyber attacks.
Some measures that exchanges can implement to improve the security of their clientele include continuous monitoring, vulnerability disclosure, and bug bounty programs. Continuous monitoring and detection of vulnerabilities ensures that exchanges have optimal visibility over the funds they hold and can react in a timely manner to any violations that may occur. Bug bounty programs, on the other hand, encourage “ethical hackers” or security experts to search for system vulnerabilities in exchange for a reward, which helps identify vulnerabilities to fix them before they can be exploited.
Another security measure exchanges can explore is keeping a high enough proportion of their holdings in cold storage. Assets held in cold storage are offline, often locked and difficult to physically access. This makes them much more protected against cyber-attacks and security breaches and enables a significant reduction in the security risks they are exposed to.
There were some hard lessons learned in this market crash. However, as with all difficult times, it is important to learn what we can and apply that knowledge to protect ourselves from future wrongdoing and emerge stronger than ever before.
Fortunately, things are moving in the right direction for cryptocurrencies. People are more and more educated. Innovations appear every day. Comprehensive regulations, which until now belonged to fast-moving jurisdictions such as Liechtenstein and Bermuda, are being adopted in an increasing part of the world. MiCA will soon enable true cryptocurrency regulation throughout the European Economic Area. And the renewed emphasis on security is being demonstrated by key players within the industry. By focusing on these key areas — regulation, education and innovation, and security — we can get through this winter and plant the seeds for a bright crypto future.