Lies Reshaping Cryptocurrency Culture — What’s Next?

Facing a lot of pressure right now, the cryptocurrency space is being bombarded daily by ever-stranger headlines. Hundred million dollar hacks, crypto-related kidnappings, pump and dump manipulations, fake tokens, ghost project advisors — news of this sort does not even raise an eyebrow anymore.

Ongoing uncertainty poses threats to the society of users. Ultimately, they should be the benefactors of the blockchain revolution. It seems that converging forces are building momentum for change.

US regulators start paying attention

The U.S. is usually the lead dog in assessing how assets should be categorized. Cryptocurrency-related matters are not an exception.

Some weeks ago, New York’s Attorney General sent out a questionnaire to 13 virtual currency exchanges. The inquiry contained questions about exchange business models, security practices and actions taken preventing market manipulation and insider trading — areas which are scrutinized excessively while regulating publicly traded financial instruments.

More often than not, cryptocurrency trading platforms act as the medium to transfer regular state-issued currencies to digital ones. Standing regulatory framework allows crypto exchanges to operate in a less transparent environment compared to traditional financial institutions. When asked about the investigative efforts, NY attorney general E. Schneiderman had to say “too often, consumers don’t have the basic facts they need to assess the fairness, integrity, and security of these trading platforms”.

As of now, any platform, entity or individual who wants to deal in virtual currencies in the state of New York has to apply for a Bitlicense. One of the exchanges which refused to participate in Attorney Generals questionnaire — Kraken, has previously vividly described Bitlicense regulatory framework as “a creature so foul, so cruel that not even Kraken possesses the courage or strength to face its nasty, big, pointy teeth.” The aforementioned description was published in one of Kraken’s blog posts sometime during 2015.

The most feared U.S. regulatory behemoth, the SEC (Securities and Exchange Commission) has been pursuing a punitive action for companies which tried to positively affect share value claiming to adopt the blockchain tech.

One of the victims recently falling under SEC’s radar was Riot Blockchain, a company which previously sold hormones for cattle, equine and swine. Up to the end of last year, Riot Blockchain was known as Bioptix when it decided to rebrand itself. Newly established company reoriented operational efforts towards cryptocurrency mining and investments, have even discussed plans to launch a cryptocurrency exchange. On October 4th the company announced plans of the title change and had enjoyed a steep surge in stock price escalating from around $4 USD at the end of September and reaching an all-time high of $38.60 on December 19 of 2017.

Sadly, jumping on the crypto bandwagon does not work in all cases. Riot Blockchain has faced negative publicity coming from the press calling the company out on false promises and bad management. Moreover, the SEC just served Riot Blockchain with a subpoena to provide further clarification on how exactly the company utilizes the blockchain technology implied in the company’s new title.

This is not an isolated initiative by the SEC to take a closer look at cryptocurrency and blockchain-related entities involved in illicit business practices. The investigative efforts also referred to as SEC’sprobe, has been reportedly launched as early as February of 2018.

Japan & South Korea choose self-regulation

Across the earth, Asians are taking a different approach. Crypto exchanges are joining together to create self-regulatory bodies. The first nation to hit the go-ahead of self-regulation was Japan. 16 of Japanese cryptocurrency exchanges announced the formation of a collaborative effort to recuperate public trust following the $530 million hack of Coincheck platform.

South Korea seems to be following their Japanese counterparts’ example and have raised similar ambition to unite country’s exchanges. Proposed transformations of currently used business models target to increase the transparency within the ecosystem and double down on anti-money laundering measures.

Japan and South Korea belong to the group of countries with highest crypto-currency penetration within national populations.

Community waking up

Historically having been strong proponents of the laissez-faire principles of no regulation, the cryptocurrency community is slowly changing its tune.

The recent call to action came from Savedroid which faked a scam exit after successfully raising $50 million dollars. Savedroid left a famous meme from a comedy series South Park on their official website claiming all raised funds are now gone. To make the story believable, Savedroid’s team vacated their office building in Frankfurt while their CEO tweeted a photo structured to imply he has left the country, the message contained a note “Thanks, guys! Over and out…”

The following day Savedroid released a video calming down the community and explaining the reasons behind their fake embezzlement of funds. “If we look to this market as we have done during these past 4 months, there’s just so much scam. <…> If we don’t go for better regulation, we believe it can bring the whole market down.” — told Yassin Hankir, the CEO of Savedroid.

Y. Hankir explicitly claimed that the whole model of ICO fundraising is facing extinction given no unified industry standards are set. “We need regulation which is practical, viable and actually strengthens the market for trustworthy ICOs”.

Interestingly, the whole situation caused a backlash in one of the most popular online forums on Reddit debating whether it was a cheap marketing stunt or a truly genuine call to action.

Thinking ahead

To weed put the rood of the problem before it manifests, legitimate ICOs are implementing various safeguards and public disclosures to effectively communicate honest intent behind the project. ICOs often sell their vision grounded in the roadmap for potential end-users and speculators.

Obviously, it is a complex task to anticipate the road to product implementation due to the manifold nature of technology creation. Team transparency and program code transparency is a way for upcoming projects to communicate and showcase their goal as well as surrounding intellectual ecosystem implementing it.

“For us, public perception is critical as we are creating a consumer application. Early adopter involvement plays a key part in determining how to structure our platform, which features to implement first. We operate under the assumption that there’s a chance to create loyal customers. Early adopters may transition to become brand ambassadors later on and we value this opportunity a lot”- N. Avidan, CEO of ORCA Alliance

Close dialogue with the community and partners, regular development updates, active involvement in blockchain events and online discussion boards are strategies employed to boost brand awareness and build trust. With hundreds of new projects launching every month effective communication is growing in relevance.

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The industry is maturing. When all sides of the ecosystem — regulators, users, project owners and service providers are starting to agree on the need for a common framework, it is a clear indication of topic relevance. Still, the question remains: how fast can these industry pillars with diverse objectives agree and adopt the new set of rules.