[New Wave] Cryptocurrency Exchanges, Have They Forgotten Satoshi's Philosophy?

Published 13 Jul.2021 21:24(KST)

In 2008, 26 years after David Chaum first proposed cryptocurrency, Satoshi Nakamoto, having experienced the US-originated financial crisis, naturally harbored resentment toward the opacity, bloating, and empowerment of financial institutions. Consequently, he invented ‘Bitcoin,’ a blockchain-based decentralized cryptocurrency that can operate independently without the help of financial institutions.

From a long-term perspective of 300 years, or a short-term view of 100 years, Bitcoin’s emergence was revolutionary in that it returned the currency issuance power, which had been monopolized by central banks around the world, back to individuals using P2P (peer-to-peer) communication and cryptographic technology. However, over time, the issuance power of cryptocurrencies became monopolized by a few companies equipped with high-performance mining equipment, and the interests of users who wanted to acquire cryptocurrencies more easily and businesses interested in fee revenue converged, leading to the birth of cryptocurrency exchanges.

The existence of cryptocurrency exchanges, which can be considered another type of financial institution, is clearly contrary to the philosophy pursued by Satoshi. Nevertheless, it is a fact that exchanges have contributed to the popularization of cryptocurrencies to some extent, so their contribution cannot be overlooked. However, the recent behavior of cryptocurrency exchanges is so concerning that it threatens to nullify even that contribution.

Following the enforcement of the revised “Act on Reporting and Using Specified Financial Transaction Information (Special Financial Transactions Act, or Special Act)” on March 25 and the legislative notice of the Special Act Enforcement Decree amendment on June 17, cryptocurrency exchanges have been rushing to clean up so-called ‘altcoins.’ The Special Act and its Enforcement Decree amendments impose anti-money laundering obligations on cryptocurrency operators equivalent to those of financial institutions, require the segregation of customer deposits, and mandate obtaining Information Security Management System (ISMS) certification as conditions for registration acceptance. Additionally, exchanges can no longer handle cryptocurrencies issued by themselves or related parties, and self-trading (wash trading) of cryptocurrencies by exchanges and their executives and employees through the exchange is also prohibited.

Exchanges are hastily conducting coin delisting operations, but the problem is that this process is completely non-transparent. Because the criteria for deciding to suspend trading and the period from designation as a cautionary item to delisting vary from exchange to exchange, complaints such as “Are they only cleaning up kimchi coins made in Korea?” and “When they indiscriminately listed coins to collect fees, where were they? Now they are irresponsibly backing out” are erupting everywhere.

In fact, concerns about information monopolization and empowerment of cryptocurrency exchanges are not new. As a result, decentralized exchanges have been proposed as an alternative, but there are still many issues to be resolved in terms of security and liquidity supply stability. While it is understandable that companies seek profit, exchanges, which act as a bridge between Satoshi’s legacy of cryptocurrencies and users, should be different in some way.

Cryptocurrency exchanges that leave behind a sense of mission and responsibility and merely use Satoshi’s philosophy of decentralization and transparency as marketing tools may be targets to be more wary of than traditional financial institutions. This is a time when the responsibility of cryptocurrency exchanges is more demanded than ever, including securing transparency for investors through information disclosure, implementing autonomous verification based on fair standards, and establishing strict internal rules.