Why are Crypto Exchanges seeking Security Licenses?

• Toshendra Kumar Sharma
• December 27, 2018

Since 2009 till date will see the surge of cryptocurrencies and cryptocurrency exchange platform. This rise in the number of cryptocurrency exchange platforms has paved the way for new avenues of investment for the investors. Whether you want to start off small or invest hefty amount, cryptocurrency exchange platform provides the right podium for the same. However, one of the most common problems or challenge that cryptocurrency exchange platforms are facing is security issues. There have been various cases of fraud and hacking that has led to the surge for a more secure and regulated platform. This is the primary reasons that cryptocurrency exchanges are seeking security licenses.

Why there is a need for a security license?

Recently we have seen exchanges are rapidly inclining towards receiving licensing to maintain their operations. Many countries have taken this initiative.  They are focussing on bringing regulations on exchanges os that more and more investors can put in their money.

Many investors are dubious about investing in cryptocurrency especially because of lacks regulations. In order for them to start pouring in, it is important that cryptocurrency exchanges become more secure. Having regulation is a step in this direction.

As per the survey conducted by Thomson Reuters, one out of five financial services are willing to trade in cryptocurrencies. Since, at the present time, the system lacks regulation from government agencies like Exchange Commission, the US Securities and Exchange Commission, the security of exchanges becomes a questionable affair for many.

The reason for investors to dread is because in 2018 itself over $731 million were stolen from cryptocurrency exchanges. This also includes $500 million Coinheck hacks. After hack, the company admitted that it lacks security which led to such the loss of money, thus raining question on the seamless functioning of exchanges.  Other exchanges that had fallen prey to the attack of the hackers include the hacking of Conrail which is a South Korean cryptocurrency exchange platform. It had lost $40 million in the hack.

These are just a few of the series of hacking event that had taken place in 2018, which strongly demands the need for strict regulatory authority.

What is happening around the globe?

As mentioned above, many cryptocurrency exchanges are looking forward to bringing in regulation and this is not just on paper rather we have seen some practical implementation of the same. Here are some of the examples:

• Bitstraq Exchange–

  It got its first cryptocurrency license under Malta’s new Virtual Financial Asset law. As per Bitstaq’s VFA Class 4 license. This license will allow the exchange to do cryptocurrency exchange and also leverage token trading services. Bitstraq now allows investors to trade in Bitcoin, Ethereum, Bitcoin Cash and Litecoin. The company plans to add more coins and become one of the leading security token markets.

• BANKEX-

  it is a Financial Technology company that has also applied for a number of the license under the Virtual Financial Assets Act or VFAA. The company also aims at proposing an STO solution while adhering to the regulatory policies.

   

• Kraken-

  This is yet another cryptocurrency exchange platform which is also willing to applying for security license. The company will be applying for the license to SEO for brokerage and trading license. Kraken also wishes to register as an ATS or Alternative Trading System.

   

• Countries Initiative–

  The lack of regulation in the cryptocurrency exchange platform has led many nations to work actively in the field of Blockchain and cryptocurrency. This is the technology for the future and thus, countries are showing inclination in bringing regulation. Regulatory authorities in Japan and South Korea are slowly moving towards bringing in regulation which is going to be similar to the banking system.

   

What does this regulation include?

The new regulations that the exchanges are eyeing at will bring in the following practices into the picture:

1. KYC or Know Your Customer which is similar to what is happening the bank.
2. AML practices
3. Mandatory safety measures like cold storage
4. Governmental oversight of internal practices.

All these practices are directed towards curbing theft and hacking which are acting as a threat for the investors to invest in the cryptocurrency exchange platform.

Final Call-

When these practices will be completely implemented then cryptocurrency exchange will work like the banking system. Unlicensed exchange platforms will be equivalent to unlicensed bank thus declaring that the cryptocurrency exchange platform is not sage for the investors. This will definitely usher a new era of success for the cryptocurrency markets.