Climate Change: Coming Out of Crypto Winter
Powerful currencies like Bitcoin have also suffered from criticism, while progressive Ethereum has set the bar high by moving from proof-of-work to proof-of-stake, thereby reducing its carbon footprint to almost nothing from its previous use. – which corresponded to the energy consumption of Finland.
Regulation also looms large, as governments and financial authorities set new parameters for the decentralized financial space – and this is shaped by the need for greater security as cyber attacks and fraud continue to rise in the digital currency space.
The exchanges seem to embrace new rules
Experts agree that confidence needs to be restored so that investors have confidence in cryptocurrency and DeFi. The journey towards better security begins with the world’s leading exchanges, which appear to be leading the way by introducing tougher verification methods.
Micheal Ramsbacker, CPO of Trulioo, a leading online identity verification fintech, is convinced that this will play a major role in the development of the DeFi sector. He says that crypto users will naturally gravitate toward exchanges that embrace stricter regulations because new research shows that consumers now want to see visible signs that organizations are focused on protecting them.
In fact, 66% of crypto users claim they have become more tolerant of identity verification measures over the past three years, and 78% are more comfortable with identity verification taking longer.
“As we dive into specific sectors, it is likely that we will see identity verification take on an even more critical role within the crypto sector. Recent events are likely to lead to increased regulation across all areas of cryptocurrency and decentralized finance and, in particular, exchange functions.” Regulators will look to bring in rules to protect consumers.”
Ramsbacker says that from a consumer perspective, trust and confidence around crypto is probably at an all-time low. “Our own research last month found that 83% of crypto users said crypto companies should do more to reassure and protect customers.
“Against this backdrop, I believe it will increasingly be a case of the market determining how the crypto sector recovers and the direction it takes going forward. I predict we will see mainstream crypto investors vote with their wallets and favor platforms (and jurisdictions) that embrace, in instead of trying to escape regulation.”
Better help for victims of crypto scams
Last year, the UK judiciary introduced a new legal gateway called CPR to serve disclosure orders on foreign cryptocurrency exchanges. The Supreme Court ruling means victims of fraud are given greater legal avenues to trace their stolen digital assets, at a time when fraudsters can be located anywhere in the world. Faster access to international crypto exchange data will allow more victims to track fraudsters before the scent goes cold.
Sam Roberts, a cryptocurrency legal expert and partner at Cooke, Young, & Keidan, says: “The use of the new CPR gateway to serve disclosure orders on foreign cryptocurrency exchanges is an encouraging step in the fight against crypto fraud. Despite this, the challenges that claimants face in these cases remain significant, and this particular case may not fully illustrate how useful this gateway will prove to be.”
However, it is not as clear as it could be and more work needs to be done in the area of identity security, explains Roberts: “While these developments are encouraging, overseas exchanges’ compliance with these orders will continue to be patchy and the information provided by exchanges will not help claimants if – as is often the case – the account holder has had their identity stolen.”
Several pilot schemes launched for CBDCs
Globally, pilot schemes for the new digital currencies will be rolled out during 2023. The Federal Reserve Bank of New York announced a larger pilot scheme in November 2022. The program will be pressure tested for 12 weeks, and the data collected will shape the full rollout of the digital US dollar – which has not yet been announced.
According to reports, the banks and fintechs involved will explore the possibility of an “interoperable network of central bank digital money and commercial bank digital money operating on a shared, multi-unit distributed ledger” on a regulated liability network. Furthermore, banking behemoths including Citi, HSBC, BNY Mellon, PNC Bank, Mastercard, TD Bank, Truist, US Bank and Wells Fargo are participating in the pilot via a token issuance scheme, which settles transactions through simulated central bank reserves.
Blair Halliday, CEO of Kraken UK, says caution needs to be exercised before the official rollout of CBDCs can be considered. “Today, more than 100 countries are in various stages of development of CBDCs and about 10 have successfully launched to the public. There are mixed opinions about how CBDCs will affect the DeFi space, as well as how closely CBDCs are aligned with the underlying principles of cryptoassets.
“While the applications are endless, it is possible that CBDC could give governments and banks the ability to track transactions and provide real-time censorship to individuals who disagree with their point of view. While this may seem outlandish, it is not beyond the realm of possibility, so the industry follows suit watch closely as CBDCs roll out across countries to assess whether they act as a force for good or provide tools for control.”
Confidence in crypto is increasing
As CBDCs are approved by governments, it seems likely that confidence in the digital currency space will increase. This will be further enhanced by tougher regulations and security, as well as being a currency alternative for those who are not keen on using CBDC.
One of the benefits of using a non-government regulated cryptocurrency is the privacy it affords the user. Cash is depleting rapidly and also has limitations when it comes to cross-border transactions. These are being addressed by new cross-border fintech products that enable an increasing number of transactions to be carried out seamlessly on the blockchain.
The NFT market will encourage greater adoption
Although currently in a depressed state, the potential for tokenization that can be used to transform traditional assets into digital, transferable capital is growing. For example, moves are now being made to make real estate transactions on the blockchain. The use cases are increasing almost daily because they cut out the middle man – in addition to the painstaking and expensive paperwork, on top of weeks of processing time.
Halliday says: “I think we’re going to see greater adoption of cryptocurrencies as a strength once confidence is restored in the crypto industry. In 2022, Ukraine showcased a great example of how this innovative technology can offer a last resort for citizens left behind by traditional finance in their hour of need.”
He adds: “However, cross-border payments are not the only use of crypto, and I expect we will see more practical applications emerge as smart minds in the industry find ways to use the technology to solve real-world problems.”
