CryptoUK and FT Alphaville Debate Cryptoasset Regulation at UK Treasury Hearing

Representatives from three of the largest and most innovative crypto companies attended a UK Treasury select committee hearing to discuss cryptoassets. Iqbal Gandham, Chairman of CryptoUK & Managing Director of eToro sat alongside Marco Santori of Blockchain and Obi Nwosu CEO of Coinfloor. Izabella Kaminska, Editor at FT Alphaville, took the opposing side to balance the opinions.

The Treasury committee hearings are designed to provide UK MPs a chance to question industry experts and further their understanding of the opportunities and challenges cryptoassets present. CryptoUK a self-regulated cryptoasset trade group, has requested regulatory oversight for the cryptoasset industry. The panel was questioned on a wide array of topics over the course of almost two hours and although disagreeing on some topics they held a common belief that the technology is young and imperfect but an alternative choice to the current financial system and to many of their users that was a risk worth taking. The preceding was kicked off with perhaps the hardest question to answer:

“What are cryptocurrencies?”

Ms Kaminska cited Mark Carney’s speech, 'The Future of Money', explaining that they are far from currencies as they fail to perform the three basic properties of money; store of value, medium of exchange and unit of account. Consistent with the FT Aplhaville stance she stated that their primary use case was speculation, implying throughout the hearing that speculation was synonymous with gambling and thus had similar negative externalities. Aside from speculation cryptocurrencies served a purpose in the criminal markets, noting that these markets were fragmented as they will continuously search for the most private cryptocurrency available.

The remaining panel had much broader definitions and agreed that the term ‘cryptoasset’ is more accurate. Mr Nwosu said that cryptoassets have multiple functions ranging from currencies to commodities and everything in between. As they mature and layer two technologies take hold their use case as currencies will work “as originally intended”.

Mr Grandham agreed cryptoassets are their infancy and made the analogy to the internet and how it took email 35 years to gain mainstream adoption. Making the distinction that blockchain technology is better suited at transferring value without trusted third parties as opposed to just information. Marco Santori looked at the human angle and told the committee how bitcoin and other cryptoassets allow the unbanked to be banked and escape oppressive regimes:

“People don’t come to blockchain to speculate… they come to blockchain so that they can live, so that they can escape governments that have been irresponsible with their currencies, so that they can prevent their hard-earned savings from being nationalised”

In fact Bitcoin has outperformed Venezuelan Bolivars from its peak of $19,800 in December.

Markets

A number of questions focused on the health of the crypto markets and what qualities might be desired in the future. The panel agreed that increased liquidity, decreased volatility and greater consumer protection were the top priorities.

dec-present cryptos.pngSource: CryptoCompare

Mr Grandham cited CryptoCompare data that shows volatility dropping across almost all cryptoassets, he also believed volatility and liquidity would improve regardless of regulation. However, he noted regulation was essential to improve consumer protection and encourage UK-based crypto companies to not bank overseas which in turn would improve transparency and reduce customer costs.

Mr Nwosu was adamant that successful regulation would bring in money from institutional investors that is waiting eagerly for the markets to be regulated. His sentiment mirrors eToro’s belief that successful regulation will drive price up as more institutional investors will move in:

Security and Risks

Bithumb, Coinrail and Coincheck hacks were all cited has examples of the failure of trusted, centralised third parties within the crypto space. Both Obi and Iqbal noted that the proposed CryptoUK code of conduct requires exchanges to hold 90%+ of cryptoassets in cold storage – where private keys are never exposed to the internet. Coinfloor even holds 100% of their cryptoassets in cold storage and has never been hacked. Mr Grandham said Bithumb has reacted well by promising to reimburse customers and transferring their remaining hotwallet balances to cold storage after the hack:

Security and consumer protection raised a lot of tricky questions, Izabella challenged the concept of ‘Be your own bank’ as she knew many highly intelligent investors who had lost their private keys. Thanks to the immutability of bitcoin and other cryptoassets their funds were irrevocably lost. Ironically this has led to the re-emergence of trusted third parties such as exchanges, which is juxtaposed to the ideals of bitcoin and cryptoassets. Ms Kaminska also pointed out that gaining security by storing 100% of funds in cold storage causes significant inefficiencies, for example, Coinfloor can only make withdrawals once a day.

A common belief amongst the three cryptoasset advocates was that the technology is young and imperfect but to many it was a choice. An alternative to the current financial system and a risk worth taking.

Compliance and regulation was discussed at length but will be covered in a follow-up article.

Hacked Exchange Cryptopia Enables Trading in 40 Different Currency Pairs

New Zealand-based digital asset exchange, Cryptopia has reportedly resumed trading on its exchange as it is now allowing 40 different trading pairs. This, after Cryptopia recently experienced from several different security breaches.

Support For Bitcoin, Litecoin, Dogecoin Pairs Added

Cryptopia’s management announced (via Twitter on March 18th) that it is planning to expand its list of coins which will again be supported on its trading platform. As noted on Cryptopia’s official support website, the exchange has enabled several different trading pairs (as of March 19th, 2019) with major cryptocurrencies. These include bitcoin (BTC), litecoin (LTC), and dogecoin (DOGE).

In response to Cryptopia’s announcement, Twitter user @dgb-chilling, a supporter of DigiByte (DGB), a cryptocurrency that uses five different mining algorithms, said that he had emailed the exchange’s support team to inform them regarding the coin’s latest update (version 6.17.2). He added that “an upgrade was recommended but not mandatory.”

Meanwhile, Chuck Norris (@CryptoTweet6) remarked: 

Now this is good news! Let’s hope the rest of the coins will be released for trading swiftly.

Other users also considered it “good news” that the compromised cryptoasset exchange was gradually resuming its operations. However, one social media user asked when Cryptopia would start enabling deposits while another inquired about why his ARK coins were still not recoverable from the trading platform. He claimed that he had deposited 1,000 ARK, currently valued at around $628, (a popular proof-of-stake based coin) on Cryptopia. The user also complained that his coins were missing “missing because [the exchange] did not update the ARK wallet."

Tens Of Millions Of Dollars Stolen In Hack

On February 27th, 2019, Cryptopia’s management announced that it was “assessing the impact incurred as a result of the hack” which led to the theft of tens of millions of dollars in cryptocurrency. Last month, Cryptopia’s support team had also estimated that the total loss incurred due to the security breaches was of around 10% of its total holdings (in the worst-case scenario).

Notably, the exchange’s official Twitter account had been silent for several weeks (since Feburary 14th). However, it released several announcements, starting in late February, in which it revealed that its staff members were working on securing each customer’s account individually. Cryptopia’s management also noted that it was taking the appropriate measures to ensure that its trading platform is secure when it is officially back online.