Will cryptocurrency ever be trusted?
Does cryptocurrency have a trust problem? A combination of volatility, instances of hacking or fraud and the lack of mainstream endorsement have led many to argue that crypto is dangerous financial territory in which to tread carefully. Stephen Stonberg, COO of Bittrex, writes
Stephen Stonberg, COO of Bittrex
A global survey by Kaspersky found that 31% of consumers in 22 countries believe cryptocurrencies are volatile and would need to be more stable before they consider using them.
Another 35% considered them to be a passing fad, while among the small minority of crypto users, 19% had experienced hacking attacks (underlying blockchains cannot be hacked, but exchanges and digital wallets can be). Even among millennial investors most disposed to be favourable, over a third (37%) don’t trust cryptocurrencies.
It’s an irony if trust is becoming a barrier to adoption, because the very foundation of cryptocurrency was of trust as a problem in itself. “The root problem with conventional currency is all the trust that’s required to make it work,” the founder of Bitcoin Satoshi Nakamoto wrote in 2008. As he argued, the decentralised nature of cryptocurrency could circumvent the need for trust in fiat institutions such as banks that defines mainstream financial markets.
Decentralisation remains the central promise of cryptocurrencies – and the blockchains on which they depend – but the industry must face up to a fundamental reality: before you can replace trust, first you have to earn it. Despite its disruptive promise, in many important ways cryptocurrency is no different from the various other things that people have accepted as money down the centuries – from gold and silver coins to polymer notes.
The important thing is not so much the nature of the vessel as the common belief that the tender in question has value, and can be exchanged and traded as such. If cryptocurrency doesn’t cross this threshold of belief among enough consumers, it will never fulfil the rich potential in which early adopters have invested.
This is why we believe the industry has come to an important inflection point. At the precise moment it needs to be gaining momentum towards wider adoption, progress is being inhibited by ongoing consumer uncertainty that surrounds the market.
There are many reputable players in cryptocurrency, but also undoubtedly some who have used the excitement and lack of widespread knowledge to take advantage of people. High profile cases such as OneCoin, accused of being a fake cryptocurrency and effective pyramid scheme, only reinforce this impression among the wider public.
In this context, it is more important than ever that responsible cryptocurrencies and exchanges make every effort to show consumers that the industry can be trusted. This kind of trust can only be gained progressively through track record, demonstrating that people’s money is well looked-after, digital wallets are secure, and that legal and regulatory protections exist.
We have moved our exchange, Bittrex Global, to Liechtenstein because it offers one of the most mature regulatory systems in the world for cryptocurrency. The framework provided by the recent Blockchain Act both makes it easier to hold and trade assets as digital tokens, and provides superior capital protections for investors. Being compliant with this regulatory system is something we see not as a burden but as an advantage: allowing us to offer the kind of certainty to customers that only formal law and regulation can provide.
This illustrates the choice that every industry participant in cryptocurrency now has to make. There is the ‘pirate’ approach, continuing to decry legal and state intervention as overreach inimical to the founding purpose of digital currency, or there is the approach that embraces law and regulation as fundamental to taking the next step towards mainstream adoption. If cryptocurrencies are ever to be trusted outside the early adopter market, only one of those offers a viable route forward.