Chain analysis: Crypto needs to focus on transparency

The entire crypto industry should strive for the level of transparency seen in DeFi, writes Chainalysis Chief Product Officer Pratima Arora in the new PYMNTS eBook, “2023 Payments New Year’s Resolutions.”

There is no doubt that 2022 was a tough year across the crypto industry, what I believe is the future of payments. And we cannot address the tough year without reflecting on what happened to FTX. But there is good news for the year ahead, and that is because what happened at FTX was not a crypto failure; there was alleged fraud from one organization. These scenarios happen in every industry, and they will happen again. But we can look ahead to 2023 and build and grow from here with this in mind.

In the coming year, why do I still believe in the power of crypto? Because crypto will reinvent the exchange of value in the same way that the internet reinvented the exchange of information. And as with the early internet, some companies will fail and some will succeed. The maturation of the industry will take time.

As we look ahead to 2023, I want to focus my optimism and our decisions on two things: security and transparency.

Safety

A trend that continued to intensify in 2022 was hacks, and specifically hacking of cross-chain bridges, which accounted for 64% of losses throughout the year. These incidents target the nexus between blockchains and DeFi projects, often compromising hundreds of millions of equivalent USD values. I suspect this will continue in the future, as more likely than not interoperability between blockchains will remain an important goal for the community.

Similar to how our industry came together after the endless hacking of centralized exchanges in 2019, we must do the same in DeFi. Given the losses and the promise of DeFi as an antidote to some of the shortcomings leading to the collapse of FTX, I think we will see a lot of collaboration and progress in this area.

Transparency

With the right data, tools, guidance and partnerships, the cryptocurrency industry can hold its businesses and people accountable to protect consumers by design – through its inherent transparency. No other sector of the crypto ecosystem embodies transparency more than DeFi, where all transactions are visible and the code behind the protocols is open to all. The entire crypto industry should strive for this level of transparency. There are clearly opportunities to bridge off-chain data on obligations with on-chain data to provide better visibility. And as more value is moved into the blockchain, potential risks will also be more transparent.

This moment is an opportunity to take stock of our values ​​and advocate for a better and safer ecosystem. Basically, there is a great demand for new ownership models in the economy. Crypto is a cross-border, instant and cheap way to exchange value, and I think the demand for it is only going to increase. Now, in 2023, a better future will be built. It is times like these – bear markets – when changes in crypto technology happen.