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You know the saying, “When life gives you lemons, make lemonade.” But when it comes to securing your crypto assets on a centralized exchange (CEX), the old adage should be: “When life is under control, create a self-custody wallet.” Self-custody is arguably the better solution for protecting customer interests in cryptocurrencies. Regulation alone is not enough.
The following opinion editorial was written by Joseph Colement, General Counsel of Bitcoin.com.
Don’t get me wrong, regulation is important. It’s like a flimsy umbrella on a sunny day. It’s better than nothing, but you don’t want to rely on it during monsoons. Just ask the people at Gemini who managed to lose all their customers’ “earned” money despite being the “most regulated” CEX. Talk about “earning” a bad reputation! Oh.
But let’s be real here. The world of cryptocurrencies is like the Old West. And let’s be honest, the U.S. government is like the sheriff who just arrived in town trying to make sense of this new frontier. It’s like Dad, but in the end it just gets in the way.
As a lawyer working full time in the cryptocurrency industry for over 5 years, I can assure you that the problem with CEX is not regulation (or lack of regulation), but the business model itself. When an entity controls a customer’s money, the customer trades and gambles with that money, much like a stockbroker playing blackjack with his retirement savings. On the other hand, when things get worse, the customer is left with a bag (in this case, an empty wallet).
A “regulated” CEX also mixes services such as trading, custody and market making. Unlike traditional regulated stock exchange platforms, many of his CEX users trade against the exchange itself, as opposed to another client of the exchange. This allows CEX to trade ahead of customers. This is a well-known practice practiced by leading exchanges in the US as well.
Don’t forget hacking. To date, about $5 billion of user funds have been stolen in the last three years, and in 2022 alone, he has just under $3 billion. But don’t worry. DOJ will always protect you. By hitting high-profile cryptocriminals like Bitzlato at scale, they make sure your funds are safe.
Complying with regulations requires CEX to generate billions of dollars in revenue, a cost that is often passed on to customers. CEX spends more money on legal and compliance than product development. This month, Coinbase invested his $50 million in compliance departments following his settlement with the NYDFS, but cut his 20% of employees. Lawyers are blockers, not UX designers. If you follow their advice blindly, you risk getting a good old cookie popup.
Seriously, self-management is the way to protect your crypto assets. Honest business practices and no-custody wallets are key to protecting the interests of investors and customers in the cryptocurrency world. Instead of relying solely on regulation, move to a more decentralized model where users have full control over their funds and are not at the mercy of centralized entities. Only then can you truly ensure the safety and security of your funds in the world of cryptocurrencies.
What do you think of self-custody as a solution to protect crypto funds? Do you think it’s a better way than relying solely on regulation or do you think there is another approach to take? In the comments below. Please share your thoughts.
image credit: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. This is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any product, service or company. Bitcoin.com does not provide investment, tax, legal or accounting advice. NEITHER THE COMPANY NOR THE AUTHOR WILL BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY DAMAGE OR LOSS ARISING OR ALLEGED TO OCCUR ARISING OUT OF OR RELATING TO YOUR USE OF OR RELIANCE ON ANY CONTENT, PRODUCTS OR SERVICES DESCRIBED IN THIS ARTICLE. We are not responsible.
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