To Add Trust to the Digital Currency Industry, We Need to Take a Hard Look In the Mirror
You don’t have to look far to see that the digital currency industry has a serious credibility problem. For every new Bitcoin millionaire, there are allegations of fraud, dishonest dealings and securities law violations. It’s no small wonder that Facebook and Google have moved to ban all advertising related to digital currencies, including that of currency trading platforms like Coinsquare, where I serve as CEO.
A number of industry players we’ve spoken to simply shrug and say that bad apples are simply part of any new, disruptive industry. There are hundreds of companies around the world chasing the digital currency opportunity right now. Not all have strong management teams and a rigorous approach to compliance and regulation, to put it mildly. Some, invariably, will be focused on getting rich quick, and unconcerned with skirting or breaking the rules. After all, it’s happened before – remember the mining stock promoter craze, or the tech-focused boiler rooms of the late 1990s? I remember them. And hearing that attitude, rather than a loud and firm commitment to making sure it doesn’t happen again, is completely unacceptable to me.
Building trust through transparency and a focus on security
Our mission is to build a 21st century financial institution, and we’re starting with building a trading platform that lets users trade 21st century currencies like Bitcoin, Litecoin and Ethereum. By doing digital currency right, we can establish a foundation for a next-generation financial services company that delivers an entire ecosystem of value, from capital markets to funds and investments, among others.
But while the currencies, products and services we are offering are new, the foundation of what makes a successful and stable financial institution will never change: trust, driven by rock-solid security and confidence that investor and user assets are safe.
If our industry is to earn and keep the trust of the investing public, regulators and other stakeholders, we have to take a hard look in the mirror. Where things stand right now simply isn’t good enough.
Security is the most obvious issue. Until digital currency platforms can deliver bank-grade security and protection of user and investor assets, finding legitimacy as part of the financial system will not be possible. Where are we today? In January, Japan’s Coincheck exchange was hacked and thieves made off with more than US$500 million of its users’ money. And in February, Italy’s BitGrail reported a US$170 million hack.
I’m proud that Coinsquare hasn’t lost a single user coin since starting operations in 2015, and we owe that in part to the cutting-edge technology we employ – much of it built in-house – as well as our stringent off-line storage policy and daily encrypted and distributed backups we perform. We’ve invested significantly in security because it’s the right thing to do for our users. We also know that hacking never sleeps, and we have to continue to invest. We will, and I encourage the rest of the industry to do the same.
Getting to know your clients
But there’s more to it than technology. To be secure and trustworthy, you also have to be truly confident that you have a clear sense of who is using your platform.
And that’s the next big challenge. Too much of the industry still has a lackadaisical approach to knowing its clients. Trading platforms are still simply happy to take trades with loose know-your-customer (KYC) information and no certainty about the origin of the digital currency or traditional money that a user wants traded. At Coinsquare, we have left millions of dollars of trading fee revenue on the table by turning away massive transactions because we could not be certain who ultimately stood behind a trade or where the currency originated.
The people who stop those trades – namely, our compliance and anti money laundering (AML) teams – have big-bank experience dealing with complex and global issues and rules. We also partner with a third party to verify KYC and AML information before proceeding with a trade. And we engage in regular dialogue with the Ontario Securities Commission and send reports to FINTRAC, Canada’s anti-money laundering watchdog.
Building the next generation of the financial system
Simply put, I believe that if the digital currency industry is to be part of the financial system, it has to play by the relevant rules, just like other participants. These rules are still evolving rapidly, and can differ from jurisdiction to jurisdiction, even on fundamental points like whether a particular digital coin constitutes a currency or a security. We believe everyone has the most to gain by working with – and not against – regulators to establish a relevant and protective framework.
Digital currencies can and will prove themselves as a viable, next-generation alternative to traditional money, and will revolutionize the way we exchange value in society. But for that to happen, the industry must be able to stand up to the same scrutiny from customers, regulators and others that banks and other financial institutions are used to receiving.
Without trust, security, and transparency, the digital currency revolution stands – and deserves – no chance.
Cole Diamond is the Chief Executive Officer of Coinsquare
Buy Bitcoin, Ethereum, XRP, and other cryptocurrencies on Coinsquare.
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