Earlier this month the cryptocurrency and Blockchain worlds were rocked by the collapse of FTX - until then one of the largest cryptocurrency exchanges. The collapse of the exchange prompted a similar crash in cryptocurrency prices (the price of one bitcoin dropped almost US$5000 in just over 24 hours) which left many crypto owners, speculators, businesses and investors struggling to understand what had just happened.
To realize the root of the issue, it’s important to know that FTX was founded by Sam Bankman-Fried - an entrepreneur, investor, founder and CEO - who also founded a company called Alameda Research, a quantitative cryptocurrency trading firm. These firms were alleged to be separate but, of course, it later turned out that Almeda Research wasn’t as separate as we’d been led to believe, as Almeda was the recipient of large amounts of FTX’s FTT token. These tokens were then apparently used to take out loans, which might have worked out (and apparently did) as long as the price of FTT remained high enough and the company could afford to repay its lenders.
Unfortunately (following a long series of poor and possibly illegal decisions by Sam Bankman-Fried), the details of the situation were discovered and, when people figured out the extent of the issue, the situation caused panic amongst FTX users. The last straw seems to have come when Changpeng Zhao, CEO of Binance (a rival exchange, which raises motivational questions of its own), publicly announced his misgivings and sold 23 million FTT. Such a significant dump of FTT and public criticism prompted a run on the exchange, and in a matter of days FTX collapsed.
The extent of the failings of FTX highlights a few key points. One main takeaway is that storing crypto in exchanges where users don’t have full control over and access to their finances continues to be a risk - one which has been proven multiple times before. This unfortunate truth only makes unhosted wallets more desirable, which really is unfortunate for regulated businesses as compliance measures have recently begun to be introduced in order to prevent bad actors from making use of financial services through such non-custodial wallets. This will require businesses to put measures in place to ensure unhosted wallets can be verified, or risk losing customers or incurring fines and sanctions if they fail to comply.
Another significant point of note to come out of the FTX debacle is the importance of regulatory measures and safeguards, the existence of which would have prevented something of this scale from occurring. People from US Senators and US Secretaries to Bank of England Officials have pushed calls for better regulation to stop this kind of thing happening; after seeing the negative impact the lack of regulation has had on the crypto community, not just with the FTX scandal but in many instances before, it’s hard to imagine an argument against better regulation.
Fortunately, at Blockpass we’ve long realized the necessity of strong regulatory controls for crypto, which is why Blockpass has created a number of simple and effective identity verification products. The ability to comply with regulations prevents malicious actors from manipulating crypto and its users for their own ends, and Blockpass ensures it is done in such a way as to keep individuals in control over their own data. For those for whom privacy is the most important issue, Blockpass is the ideal solution as data privacy is at the core of what we do. This approach can be seen with our formation of the Blockpass Identity Lab in Edinburgh Napier University and our creation of On-chain KYC TM which enables zero-knowledge verification of users. For those now looking for a method to verify unhosted wallets due to the upcoming regulatory changes and likelihood of increasing numbers of people relying on unhosted wallets rather than exchanges, keep an eye out for more Blockpass news dropping imminently.
Blockpass can help with regulatory compliance - and keep an eye out for some imminent news as to how we’re helping you deal with new regs.
The Blockpass platform is fully automated and hosted in the cloud, with no integration or setup fee. Businesses can sign up to the KYC Connect console in a matter of minutes, test out the service, and start conducting identity documents verification, KYC and AML checks. Sign up for FREE at console.blockpass.org.
By Matthew Warner