By
Bena Ilyas
April 25th, 2024
Safety matters in the digital finance sector. If you decide to enter the emerging crypto world, take a substantial amount of time to research this field and weigh the risks carefully.
The importance of keeping the capital safe has always been high throughout the history of mankind. From the gold bars stored in the brick-and-mortar, traditional banks to the rapidly emerging digital money and cryptocurrency exchanges – humanity came a long path to come up with sophisticated safety measures for one’s wealth.
There are a lot of ways to make money in crypto and even more – to lose them. Digital asset exchanges have been on the rise since the last decade, but not all of them comply with new regulatory frameworks. What’s the cost of crossing the line that marks the grey zone?
The End of Haven
The cryptocurrency realm was created for those seeking financial and personal freedom. Such people have a specific mindset and basically oppose any rules that harm privacy, believing that cryptocurrency exchanges must not be controlled in any way. There is a grain of truth in such an assumption. If the initial goal of blockchain-based platforms was to exclude intermediaries, why should someone stick to what the watchdogs say? However, crypto exchanges themselves pose as intermediaries since they offer financial services on their platforms.
The extensive history of hacks, rug pulls, and different kinds of deceptions are not reassuring newcomers that it’s precisely the kind of freedom they want. Cryptocurrency platforms were failing hard last year, closing up shops by the dozens. One of the most problematic issues is security. Referring to the notable Coincheck hack that resulted in $500 million in lost funds, many started to think about the exchange as a single point of failure. That particular breach was only one incident in a series of notable exchange hacks and security flaws in the past years, while the Mt. Gox exchange hack example is still an incomparable disaster. Trillions of dollars have been lost in such attacks since then.
Moreover, crypto exchanges can unwittingly contribute to the financing of terrorism and darknet crime. While it is entirely possible that someday in the future an entire industry could be independently controlled through self-regulation, this is still somewhat of a distant dream.
Users’ journey should become safe and platforms are already taking steps to provide robust security measures combined with a satisfying user experience.
For example, the STEX spot crypto exchange is one of a few examples that walk in the right direction. This fully compliant platform supports European AML standards, offering extensive trading pairs to provide unmatched trading options.
The exchange maintains robust defensive and extensive security tools. For example, STEX provides an option to block a suspicious account right in the login e-mail so that cybercriminals cannot further use it and continue fraud activity.
It is also possible to connect an apparat key (like Yubikey, Ledger, etc.), and therefore further entry into your personal account will be possible only with it. Of course, the industry standard, which is two-factor authentication, is also supported.
There are also options to impose restrictions on IP account access. Finally, e-mail encryption reassures users that the letter really came from STEX and they will not become victims of phishing.
Exchange supports Bitcoin, Ethereum, USDC, and 400 more assets while platform users can also buy cryptocurrencies using Visa and MasterCard and SEPA, Bancontact, and iDEAL payment systems.
The increasing importance of security in this business was highlighted by the platform’s CEO and founder Vadym Kurylovych.
“Like any other business venture, crypto exchanges should certainly work with a robust set of regulatory frameworks in the area of KYC to establish proper security measures. Self-regulation is the most cost-effective solution, as no one but businesses and their clients can come up with the best regulatory practices. Abundant regulation, however, hampers the speed of innovation development, which is now a key to success in this field,” said he.
The End of Freedom or the Beginning of a New Era?
No matter how much crypto economist anarchists might strive for ultimate freedom, regulation of crypto exchanges is necessary at this stage. The relevance increases with the growth of the crypto market and turnover on the digital asset exchanges, as well as global world acceptance of cryptocurrencies. At the moment, specific industry standards or benchmarks must be created to help combat fraud and identity theft more effectively.
According to VK, the regulation of the cryptocurrency industry in the EU is aimed at eliminating money laundering in the first place:
“Regulators are not worried about the destination where you transfer the funds and how you spend the cryptocurrencies. It is essential for them to know that users do not launder money. The regulator is not interested in the spendings of the Average Joe, but if a particular operation seems suspicious, he will be asked for additional documents.”
Speaking about the current platform’s HQ, he notes that Estonia has developed one of the best cryptocurrency legislation in Europe:
“Here, the regulations are not just copied from the conventional banking sector. There are many nuances in crypto regulation, and even more continues to emerge – it is a dynamic process.”
Like a bolt from the blue, in July 2020, Estonian regulators tightened the rules for registering cryptocurrency companies – they increased the state fee and required the physical presence of the company’s offices and employees in Estonia. Later on, it became known that more than a thousand companies failed to meet the new requirements and lost their licenses.
The country’s secretary-general of the Ministry of Finance, Veiko Tali, outlined that many of the companies had “minimal” connections to Estonia and clientele in “remote countries.”
However, there is more to that story. Noticing the negative aftermath, other companies started to flee and seek another homeland for their operations. However, not everyone followed the negative trend and decided to continue working in the country.
STEX Exchange is one of a few benchmarks companies that operate within the constantly changing market.
“The tightening of rules coincided with the coronavirus pandemic. Some companies had substantial difficulties with re-licensing. Their representatives simply could not fly to the country or hire people in Tallinn. Many businesses have closed down because they found the new requirements too onerous, ” – comments VK.
He is confident that effective legislation can only be developed through interaction between businesses and regulators. For this reason, STEX has joined the Blockchain and Virtual Currency Working Group (BVC WG), which advises EU regulators on the regulation of the crypto industry.
VK also emphasizes that KYC on regulated crypto exchanges needs to be improved:
“There is banking secrecy and General Data Protection Regulation (GDPR). At the same time, there are programs to combat money laundering (AML). A problem arises: GDPR and AML / KYC have mutual contradictions. The question is how to make them friends so that they fulfill their functions. “
BVC WG is working on the improvement of AML/KYC in the crypto industry. The group advises EU regulators on services for monitoring transactions and identifying users on exchanges.
The STEX CEO notes that there is no clear regulatory framework for the crypto derivatives market in the EU. One shouldn’t also blindly rely on unregulated platforms for a long-time game. The most controversial example of fraud is still the Quadriga FX story. Gerald Cotten, the founder of the Canadian crypto exchange, claimed to be dead in 2018. In April 2019, the business filed for bankruptcy. The forthcoming investigation revealed that the reason for it was Cotten’s fraudulent actions which resulted in millions of losses for the platform’s users. He spent clients’ money maintaining a luxurious lifestyle and opening margin positions on other exchanges.
Safety matters in the digital finance sector. If you decide to enter the emerging crypto world, take a substantial amount of time to research this field and weigh the risks carefully. After all, only your actions and careful approach to risks will be the best precaution. Unregulated exchanges are more exposed to risks and chances to lose clients’ funds. It’s better to rely on regulated platforms and personal cryptocurrency wallets to secure your wealth.