The past year has been alarming for the cryptocurrency sector, but if you look at the data, this is not the first time in history. However, after the collapse of Celsius, Voyager, FTX and other companies, there is something to think about for both Binance and the digital asset industry as a whole. At first glance, it may seem that 2022 for our ecosystem was mainly accompanied by crises and setbacks: a rollback of cryptocurrency prices from the record highs of the previous year; a series of collapses of major players that shook the confidence of users and regulators in the industry; increased attention to the cryptocurrency space from politicians, the media and the public.
This may seem like a dangerous combination of negative factors, but our industry is still in its infancy and the key for it is not what problems it faces, but how it overcomes them. In this regard, 2022 has given us much more reason to be optimistic than any previous year, as both the industry and Binance have shown amazing resilience and perseverance.
When cryptocurrency was created, it spawned a cottage industry that I often refer to as “BTC Goes to $0.” Selling books, growing an audience on social media, and being a paid speaker to proclaim that the sky is falling can be quite lucrative. One of the latest news they are trying to capitalize on is the collapse of FTX. They call it the “Lehman moment” and argue that this latest Bitcoin price pullback is comparable to the collapse of the dot-com bubble. What they miss is the fact that both of these events were watershed moments for their respective industries, but both the Internet and the banking sector are still operating—at least the last time I checked.
Implementation and development
One of the key metrics by which our industry measures its success is adoption rates. Amid all the challenges of 2022, blockchain adoption has never stopped, with individuals and institutions around the world continuing to join the world of cryptocurrencies. In retail, emerging markets lead the way, while world-renowned brands such as KPMG, JPMorgan, Rakuten, CVSHealth, Tencent, Fidelity, Baidu, Tesla, Cloudfare, PayPal, American Express, Accenture, Christie's, BlackRock, Nasdaq, McDonald's , Google Cloud, Mastercard, Sony, Nike and other major companies have benefited from implementing blockchain solutions this year. Of course, the erosion of trust in the crypto industry, which was provoked by the crisis situations of this year, will be a setback for the mass adoption of cryptocurrencies. However, we now see that demand and interest in digital assets remains high, and on this basis the industry will continue to create very valuable and useful products and services. Through hard work and a focus on development, we will restore user trust and strengthen it even further.
In the midst of all the noise that impacts token prices, project reputations, and the fates of individual investors, my goal has been to keep Binance focused on the things that matter most: growth and user-centricity. I'm proud that we have remained true to our core values in everything we do. We've grown our business and our team: Binance's 7,500 employees, representing over 100 nationalities, now serve over 120 million users worldwide. We continued to build bridges between the world of cryptocurrencies and traditional finance. With Binance P2P, users can now buy and sell digital assets using over 100 fiat currencies worldwide. In addition, we have invested over $500 million through Binance Labs to support Web3 and blockchain innovation and donated over $20 million through the Binance Charity to nonprofits and charities around the world. While it's impossible to quantify this, I feel that we have amassed significant reserves of our most valuable resource: the trust and loyalty of the amazing Binance community, for whose support we are very grateful.
Compliance and Transparency
Perhaps most importantly, the cryptocurrency industry has made huge strides in 2022 in yet another area that is fundamental to both mass adoption and user safety: regulatory compliance. I am proud to say that Binance has been and will remain at the forefront of this initiative. Over the past year and a half, we have seen significant progress towards a stronger regulatory framework for blockchain. As a responsible industry leader, Binance will continue to work even more closely with regulators and law enforcement agencies around the world to promote blockchain adoption and education.
To facilitate and better coordinate this work, we will continue to engage with others in the industry to discuss consumer protection standards. Regulators will understandably be much more skeptical, and restoring public confidence will not be easy. However, I believe these are short-term issues that will benefit the blockchain space in the long run. At this point, we need a coordinated push to make the entire industry more transparent, safe and compliant. That's why I've published six principles that I believe should be applied in our industry to protect users. The industry needs to be more open to regulatory policies that protect users, such as custody, asset, marketing, risk assessment and disclosure requirements for centralized exchanges.
Having received licenses and registrations in 14 jurisdictions across five continents by the end of this year, Binance has proven its commitment to the highest regulatory standards. We see this work, as well as transparency initiatives such as disclosing our wallet addresses and verifying user assets through mechanisms like the Merkle tree, as central to rebuilding trust and moving closer to our ultimate goal: expanding people's financial freedom. We will continue to work towards compliance and transparency over the next year.
Looking to the future
Whatever 2023 has in store for us, we are ready. Binance has an excellent team of diverse and dedicated professionals, qualified management and reliable reserves. Our business is based on a simple business model that is resilient to external shocks. Above all, we are guided by a long-term vision and a set of fundamental values, which helps us focus on development, despite possible fear, uncertainty and doubt. Next year we will focus on creating tools for users, continue to expand our team and invest in promising projects.
In my opinion, the industry will be dealing with the fallout from the FTX collapse for a long period of time. We have a lot of work to do to show that the blockchain space is not defined by just a few high-profile fraud cases. In terms of market trends, each bear market is better than the last, and I expect the industry to recover relatively quickly. We are still seeing spillover effects in the market, but cryptocurrency prices have proven to be incredibly resilient. Whether the recovery happens in a month or a year, we will definitely emerge from this crisis as a significantly stronger industry.
It is now critical that the ecosystem focuses primarily on protecting users, as well as innovation and development, so that cryptocurrencies and Web3 become deeper into people's daily lives. I hope that the infrastructure and data tools will continue to evolve and improve, and that we will see developments in Web3 ownership, with more non-custodial and multi-chain wallets. Our industry has created a number of Web3 peripheral products that have demonstrated the underlying ability to provide value to users, from NFTs to GameFi. I believe the next bull market will come from innovation in the way these products are used to create unique health benefits.
This could happen next year or the year after. The exact timing is impossible to predict (and doesn't matter), so Binance will continue to focus on what we can do: grow, innovate, focus on users, and take a leadership role in raising industry standards for transparency, security, and compliance.
Changpeng Zhao (CZ)
Key Points for Binance in 2022
Regulatory Compliance
Regulatory compliance is central to Binance's mission to bring digital assets to mass adoption and ensure user safety. By ensuring we meet high regulatory standards, we enable millions of users to benefit from access to compliant financial products and services, while also helping to build trust and awareness of our industry.
Over the past year, we have seen an unprecedented level of industry engagement with governments and regulators around the world. The political environment is changing and we are taking a significant step towards achieving greater regulatory certainty for our industry. It also signals greater recognition that cryptocurrencies are here to stay, and the industry is rapidly moving toward mass adoption.
As of the end of 2022, Binance has received 14 registrations and approvals in jurisdictions across five continents, including Colombia, Abu Dhabi, Bahrain, Dubai, South Africa, France, Italy, Spain, Poland, Lithuania, Cyprus, Kazakhstan, Australia and New Zealand. In 2022, our compliance team grew from 500 to 750 people.
Over the next year, we will continue to work with national and international regulators and legislators to ensure that all applicable requirements are met, and to promote smart cryptocurrency regulation that protects users and enables innovation.
Transparency and trust
After a series of high-profile bankruptcies and liquidity crises rocked the digital asset industry this year, it has become clear that transparency is the only way for centralized cryptocurrency platforms to maintain user trust. Adopting an ethic of transparency and accountability will require exchanges to rethink some of the core principles by which they operate. To ease this transition, CZ proposed six key rules for Binance and other centralized exchanges in the crypto ecosystem: do not risk user funds, do not use native tokens as collateral, provide real-time proof of assets, ensure reliable reserves, avoid excessive leverage, and constantly strengthen and enforce security protocols.
As part of this vision, Binance has rolled out a number of transparency initiatives. We shared details of our hot and cold wallet addresses and introduced a Merkle Tree-based PoR system to show that we have enough funds to back all users' assets at a 1:1 ratio.
Providing proof of holding reserves of this volume and scale is still unique to the industry and therefore represents an extremely challenging task. This requires much more extensive internal and third-party blockchain audits at various levels than for traditional financial institutions. The BTC asset disclosure was just the first of many steps over several months aimed at providing transparency and confidence in our reserves. We are committed to developing new systems that will allow users to access verification of their assets held on the blockchain at any time, in order to regain user trust and prove that cryptocurrency can be secure and transparent.
Safety
At Binance, we understand that the sustainable growth of the crypto industry requires partnerships and ongoing cooperation with law enforcement agencies around the world. Contrary to the still widespread belief that the digital asset space is a hotbed of cybercrime, data shows that in 2021, only 0.15% of cryptocurrency transactions involved some type of illegal activity.
However, this does not mean that we should not be vigilant and care about our community and ecosystem as a whole. We actively take measures to prevent malicious actors from exploiting our platform, and the best way to do this is to work closely with law enforcement to track and punish cybercriminals. In addition, we regularly work with private blockchain analytics companies to identify and block any accounts associated with fraudulent activity.
To further strengthen our commitment to combating cybercrime, malware and financial terrorism, we have increased the size of our security and compliance teams by over 500% and became the first crypto exchange to join the National Cyber Forensics and Training Alliance (NCFTA). It is a non-profit organization whose activities are aimed at identifying, reducing and neutralizing cybercrime threats.
In 2022, our Security and Investigations team responded to more than 47,000 law enforcement inquiries and organized and participated in more than 70 cybercrime workshops for investigators and law enforcement officers around the world.
Protecting User Security
In 2022, we continued to improve our security systems and implement stronger identity verification protocols. Today, Binance's KYC (know your customer) verification requirements are among the strictest in the industry: for example, only users who have verified their identity using government-issued documents can transact digital assets on our platform. This not only reduces the likelihood of bad actors exploiting the Binance ecosystem to transfer illegally obtained funds, but also improves the security of all our users.
To protect users from unexpected losses, Binance is continuously adding to its Safe Asset Fund for Users (SAFU), originally created in July 2018, which is currently valued at US$1 billion. The fund includes BTC, BUSD and BNB, is transparent, and its wallet addresses are available to everyone.
Education
We believe that the best way to make our users' interactions with cryptocurrency safe and fun is to help them gain as much relevant knowledge as possible. From basic security tips to advanced blockchain concepts and understanding the mechanics of complex financial products, education determines a person's ability to harness the limitless potential of digital assets. We're proud that Binance Academy, one of the industry's largest cryptocurrency knowledge bases, helps thousands of people every day gain access to basic cryptocurrency and blockchain information for free.
In 2022, a total of 26 million people used Binance Academy to better understand digital assets. In addition, the Academy team has provided training on cryptocurrencies and Web3 at 73 universities (25 in North America, 23 in the EU, 20 in MENA and APAC, and 5 in Latin America) for more than 5,500 students. To further expand its reach, Binance Academy also began preparing and publishing structured online courses in 14 languages this year, and next year plans to launch career-focused courses that meet the needs of future Web3 professionals.