Crypto Myths – Debunked! Part 6: Crypto Companies Are Unscrupulous
Main Takeaways
Responsible players in the crypto industry look after their customers and protect user funds – just like most traditional financial companies do.
Contrary to the misconception that crypto firms exploit the vulnerable, digital assets can and do help underprivileged people improve their financial situation.
Blockchain technology can break down barriers to financial access and create economic growth and new opportunities globally.
With blockchain still maturing, many falsehoods and misconceptions exist around crypto. On the menu today are a pair of myths surrounding crypto firms and how they operate. Let's dive into the topic and separate fact from fiction!
While many people recognize blockchain and crypto’s potential to change the lives of millions for the better, some remain skeptical of the technology and the entire industry it spawned. One of the major drivers of these negative perceptions is the deeply entrenched myths and misconceptions that surround the digital asset ecosystem. Ultimately, such false beliefs undermine the trust in the industry and dampen its ability to fully deliver on its massive promise.
In this blog, we’ll examine and debunk two interrelated misperceptions about how cryptocurrency exchanges and other services operate.
Myth: If a crypto exchange goes under, it keeps customers’ funds. Crypto companies exploit the most vulnerable customers.
Let’s take a deeper look at these statements and understand why it is patently wrong to paint the entire cryptocurrency industry as dangerous and predatory like this.
Myth: Exchanges Keep Your Crypto If They Go Bust
The background of this myth is easy to understand. In many countries, regulations exist that protect users’ bank deposits up to a certain value. In contrast, since digital assets are still new, crypto-specific regulatory frameworks are yet to be solidified. In most jurisdictions, there are still no regulatory mechanisms ensuring the protection of user assets if things go awry for a firm holding them on customers’ behalf. Therefore, if you believe that regulation is the only thing that allows financial industries to function, it is a natural conclusion: If a crypto exchange fails, your deposits will likely be lost, too.
Yet, in reality, regulatory restrictions aren't the only thing that protects users' deposits, be it in traditional or digital finance. In addition to sound regulation, all financial services require trust and transparency. When people hand their money to financial service providers, they at least assume that the majority of such entities act in good faith.
The trust in banks and brokers to keep customers' assets safe is also based on transparency about how those assets are handled. Similarly, transparency and understanding of user funds management are crucial to a successful custodial relationship between a crypto exchange and its users. A custodial relationship is formed when a company holds or controls funds on behalf of its customers, such as a bank or crypto exchange safekeeping customer deposits.
The inherent transparency of distributed ledgers means that crypto exchanges and other crypto firms are especially well-positioned to build relationships with their users on the foundation of transparency and trust. For example, Binance maintains and regularly upgrades its proof-of-reserves (PoR) system to allow users to verify that their assets are safely stored on the platform and that customer funds are never misused.
Ultimately, when one has a full picture of how their assets are stored and managed – as well as the means to reliably verify that the funds are safe – they can trust that they will always get back their money even if something happens to the crypto company itself.
On the other hand, unfortunately, there have been enough examples of traditional financial firms going belly up and customers losing their holdings. These incidents demonstrate the potential dangers of trusting financial institutions that lack transparency and accountability.
Opaque financial firms, both traditional and crypto, can blow up and leave no recourse for users. This is not a problem specific to the crypto industry. However, it is important to recognize that there are transparent and responsible players, both crypto and traditional ones, that work hard to ensure that users are made whole no matter what.
At Binance, we recognize that even the most sophisticated security systems are not infallible. That’s why we maintain a hefty SAFU fund that is designed to offer protection to Binance users and their funds in the event of extreme situations such as a security breach. Anyone can check the status of the funds via SAFU wallet addresses.
Fact: Responsible players – whether in traditional finance or crypto – prioritize accountability and take steps to protect their users' funds.
Myth: Crypto Companies Exploit the Most Vulnerable People
In the view of the proponents of this myth, every crypto company's business model is to bombard users coming from the most vulnerable demographics with promises of monstrous yields and getting rich easily and quickly, only to strip them of whatever little they have.
This is an incredibly one-sided view. Granted, people and organizations that promise things that are too good to be true to people who struggle financially exist in crypto (as well as in many other sectors), but they do not define the digital asset ecosystem or its relationship with crypto users.
In fact, there is another – and much bigger – side of this relationship. There is evidence that digital assets can improve the lives of people representing vulnerable demographics by advancing financial inclusion across the globe.
Crypto and blockchain have expanded the delivery and usage of digital financial services, and these effects are most conspicuous in regions where such services are needed the most. Thanks to the global spread of digital assets, those who would otherwise have no access to affordable and valuable financial products and services can now leverage savings, credit, payments, and insurance to improve the quality of their lives.
Global inequality in access to financial services leaves over 1.4 billion people without access to bank accounts, with women, people of color, and those living in low- and moderate-income communities especially likely to be among the unbanked. Crypto can reduce these barriers, helping to bridge the gap between the unbanked and the rest of the world.
Research also shows that cryptocurrencies catalyze economic growth in developing countries, provided that continued adoption is accompanied by increasing financial literacy. Digital assets can boost community and peer-driven initiatives, support a more inclusive financial services ecosystem, and create a new class of economic opportunities.
According to one article that appeared in the World Economic Forum:
An alternative financial and technological infrastructure that is global, open source, and accessible to anyone who has access to the internet, regardless of nationality, ethnicity, race, gender, and socioeconomic class, providing simple to set-up and low-cost automated financial services at scale.
The belief that leading crypto companies systematically exploit the most vulnerable customers is false. The best companies in this space are in it for the long haul. The digital asset industry holds tremendous potential to open access to financial services, support unbanked populations, and drive economic growth in developing countries.
Fact: Digital assets are already promoting financial inclusion, improving the lives of millions of people underserved by traditional financial institutions. Crypto also helps drive economic growth in developing countries.
Closing Thoughts
The myths surrounding cryptocurrency exchanges that we have debunked can make people skeptical about the crypto industry. Such misconceptions have indeed led to a lack of trust. In reality, responsible crypto exchanges and service providers go to great lengths to protect user funds. Furthermore, blockchain’s transparency and potential for economic empowerment show the myths for what they truly are: false.