There Are Some Issues That Are Making It Difficult For Cryptocurrencies To Expand And Grow
- The cryptocurrency market must address many challenges if it wants to grow
- It is possible to solve these problems and the future looks bright
The cryptocurrency industry is expanding but there are some challenges that must be addressed before it is possible for it to continue growing. In a recent article released by Decrypt, the author Tim Copeland shared a list of seven problems that the crypto industry is currently facing.
The Crypto Industry Must Face Several Challenges
The first challenge that the cryptocurrency community and industry must face is related to hacks and attacks that cryptocurrency exchanges tend to experience. There have been several platforms that were stolen and lost several millions of dollars in funds from users.
This shows that exchanges are not secure enough to protect users and that even the most popular exchanges can be hacked. Just a few weeks ago, Binance was hacked and it lost more than 7,000 BTC from users. This was equal to $40 million at the time of the attack.
At the same time, these platforms do not have institutional standards for security. Indeed, crypto users are advised not to store their funds on exchanges. The best thing that individuals with digital assets can do is to store them in cold storage wallets such as hardware or paper wallets.
In some cases, these funds that exchanges lost were related to an “inside job.” However, many other attacks happened because the platforms didn’t take the necessary measures to protect these funds. Some other hacks happened due to bugs that were exploited by hackers.
There are some exchanges such as Coinbase that have been operating in the market for several years and that never were affected by a hack or an attack. According to Decrypt, the exchange tries to hack itself and improve its own security. Another way to improve this sector of the industry is necessary to adopt better custody measures.
Another challenge that the crypto industry has to face is related to the current imbalance between privacy and security. In the beginning, Bitcoin (BTC) was used in order to provide anonymity to users that wanted to transact funds. However, different KYC and AML procedures have been implemented by platforms and exchanges, making it difficult for individuals to preserve their identities.
Regulators around the world are increasing the pressure on different platforms and exchanges requesting them to provide information about the users operating with digital assets. This is one of the reasons why users are now turning to other digital assets such as Monero (XMR) or ZCash (ZEC). Litecoin (LTC) is also going to be launching a new feature that will make it more private for users.
Another issue that Decrypt mentions is related to the U.S. Securities and Exchange Commission (SEC) and how it is currently increasing its pressure in the market. SEC’s chairman, Jay Clayton, said that almost all Initial Coin Offerings (ICOs) are unregistered securities. The regulatory agency has also sent several subpoenas to a large number of ICOs and it has pressed different ICO promoters in the market.
The goal is to clean the crypto industry from fraudulent companies and firms that do not follow the current regulations. Nonetheless, other individuals and expert believe that the SEC is trying to put a limit in the market for it not to keep growing. However, there are some states such as Wyoming that are working in order to provide a more friendly legal framework for companies operating.
Furthermore, cryptocurrency companies are struggling to find support from banks. These firms are not able to have bank accounts that would allow them to conduct normal financial business. Banks and traditional financial firms tend not to be sure about the crypto industry and how it is currently operating. This is why they are reluctant to offer bank accounts and other financial services to crypto-related companies.
Thus, it will be very important for the industry to have banks and financial institutions offering services to them in order to be able to expand and provide users with great crypto-services.
Decrypt mentions that price manipulation is still an issue in the crypto space. Bitcoin is still relatively small compared to other assets that are already established. Thus, it can be manipulated with ease by large traders and whales. For example, Tether (USDT), a popular stablecoin that is operated by the company that owns the Bitfinex exchange, has been accused of being used to manipulate the market.
There have been several moments in which Bitcoin experienced “bart” patterns in which the price of the most popular digital asset spikes down or up and comes back to where it started a few hours or days later. Market manipulation is an important problem that participants need to address because it is increasing the pressure that regulatory agencies place into the crypto space.
The SEC is currently not approving a Bitcoin exchange-traded fund (ETF) because it claims that the market is currently being manipulated by large players. In order to offer an ETF to larger investors and institutions, the SEC wants the crypto market to address these issues.
It might be possible to solve that problem by cleaning up the fake trading volume that the market has. According to Bitwise Asset Management, 95% of the exchanges have fake trading volumes.
Another problem is the overreliance that the market has on Tether. According to a recent analysis performed by Crypto Compare, just under 80 percent of Bitcoin trading was done using Tether. At the moment, there are $3 billion Tether coins in the market and they seem to have a large influence on the market.
As mentioned before, Tether has been involved in different controversies, and this is something that could eventually be a problem for Bitcoin and the crypto market in the future. Indeed, the stablecoin is being investigated by fraud by the NYSAG.
At the moment, there are many other stbalecoins that were released to the market, including Paxos Standard (PAX), USD Coin (USDC) or True USD (TUSD). These digital assets are trying to take a larger part of the market to Tether, but this is not an easy task.
Finally, institutions should start using public blockchains. JP Morgan announced that it was launching a digital asset called JPM Coin based on its private and permissioned blockchain. The goal is to offer better services to its clients that want to process transactions.
At the same time, Facebook is also working on a virtual currency and blockchain network that is expected to allow users to pay for goods and services in many locations around the world. Although blockchain is being embraced, these private chains are not allowing users to have access to them without the necessary permission.
At the moment, IBM is working with its World Wire network using Stellar for cross border payments. Nonetheless, the Stellar network has many challenges to solve before being recognised as a strong and used digital currency and blockchain network.