for cryptocurrencies, the only way to wide acceptance could be regulation
Probably one of the best things about keeping your money in a government regulated bank is knowing that the CEO can’t just empty out every account, abscond with the money, and then, according to the statement put out by the institution, die in a remote part of the developing world while doing charity work. If this seems like a very specific scenario, it’s because that’s the exact thing that happened to Canadian cryptocurrency exchange QuadrigaCX. Only the situation is a little more absurd than that because its founder was the only one with the passwords to access the cryptocurrency equivalent of a bank vault: a so-called “cold wallet” which stores customer data offline to make it harder to hack. While this may be good practice for one’s personal and highly sensitive files, it seems like a really bad idea for an exchange that needs at least a bare minimum of operational redundancy.
In our opening analogy, this would be like the CEO in question being the only person who even knows how to access the much of the system and after he’s gone, leaving the bank unable to log in and see what happened to the customers’ money. And while the initial assumption was that QuadrigaCX was dealing with a case of sloppy security practices with no redundancy, the auditors from accounting firm Ernst & Young say they were able to track how the exchange’s founder moved money around and think the $137 million in cold storage is gone, transferred to other accounts. A fortune gone and a missing founder who died abroad seems rather sketchy, which is why another crypto exchange is currently offering a reward for information that could lead them to the missing and perhaps dead founder.
Incidents like this, set against the other challenges cryptocurrencies face, both technically and economically, on their road to acceptance as truly decentralized global cash, just seem to keep underlining why we have the system we have. While you might get a rush from the thought that you’ve just discovered that the only reason we have the economy we do now is old and greedy fogeys in suits talking about how to screw the common man over cigars and cognac in some Swiss chalet, and you now have the power to make them obsolete with a few lines of code, the reality is very different. Despite the long history of backroom deals when it came to how money can move around the world, our economic system is the result of thousands of years of trial and error and, to paraphrase a famous phrase, the worst one other than the other ones tried from time to time.
We have a fiat system because it allows us to add money to the economy by doing something worthwhile, or at least attempting to, without spending our time mining for more gold. We have layers of rules and regulations because we don’t want people to pump and dump stocks with fake posts on social media and forums, or have very little, if any recourse, if their money gets stolen from hacked accounts, or have the founder of an exchange transfer it and then die on the other side of the world without leaving anyone passwords or instructions. Sure, regulations are not fun and can be burdensome, with politicians taking some way overboard to score points with voters instead of meaningfully helping anyone. But many are necessary because someone was harmed by those playing fast and loose with money, safety, and lawful-but-awful loopholes. If cryptocurrencies want to be more widely adopted, they’re going to need to accept at least some regulation. Otherwise, incidents like Mt. Gox and QuadrigaCX are going to stand out in the minds of those who would’ve otherwise given crypto a chance.