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What Are the Most Common Trust Issues in Crypto?

By Evan Jones07/03/2023

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Trust in cryptocurrency is one of the most important things about it. Without being able to trust other parties, it won’t be possible for a decentralized global system to take shape in the way which blockchain could allow it to. Negative events like the collapse of FTX Exchange, along with a variety of platforms such as Celsius, Voyager, and BlockFi, certainly didn’t do anything to increase people’s trust in crypto. However, it’s not like the banks like Silicon Valley fared much better in early March than FTX did in late 2022. 

Both events have shown that there is a lack of assurance that your funds are safe regardless of whether you had them on a centralized crypto exchange or with a bank. That said, you’ll have to keep your money somewhere, so whether you’re choosing to keep funds on a crypto exchange, in a digital asset wallet, or with a bank, you need to be comfortable with that decision. When it comes to crypto assets specifically, there are some common trust issues, which we’re about to break down before giving you some advice on how you can mitigate their effect. 

Regulation and Legality

The regulation and legality of digital assets has been a hot topic for years now, with us seemingly being no closer to change than we were when we began. At least, within North America, where the SEC has begun to overstep their boundaries and have opened up lawsuits against both Coinbase and Binance, two of the largest crypto exchanges globally. 

In their suits, the SEC claimed a variety of digital assets to be securities, triggering sell-offs by many North American holders, and creating a lot of negative spin. Already though, a judge has dismissed the SEC’s efforts to have all Binance funds be frozen, due to the simple fact that they had no evidence of any wrongdoing by Binance with user funds.

In stark contrast to the US, the EU is getting closer to passing their Markets in Crypto Assets (MiCA) framework pushed through parliament. This will provide investors and developers with clear guidelines, rules for taxation, and more. Similarly, London is looking to become an international crypto hub, pushing forward their Financial Services and Market Bill (FSMB), which provides similar clarity to MiCA.

Of course though, there are also countries that have banned crypto altogether, and if you’re within one of those countries, there’s not much you can do.

For those within North America, if you’re truly worried about the assets that the SEC has claimed (not proven) to be securities, then you may be best suited to sticking with Bitcoin and Ethereum, two of the only assets not named as securities. For those outside of North America, this honestly seems like more of a buying opportunity for them than anything else. The fundamental reasons anyone was investing in popular assets like Polygon (MATIC), Cardano (ADA), and Solana (SOL) haven’t changed, there’s simply been overreaction by North American exchanges that are delisting them, forcing sell-offs. 

If and when the MiCA and FSMB bills are passed, they will provide clear regulation for all investors, retail or institutional, in both regions, which could trigger increased adoption. 

Scams and Phishing

With crypto, much like within traditional financial systems, there are frequent attempts to scam and phish for your information. The most common phishing scams are blanket emails sent out that say that your digital asset wallet needs to be verified. This can be for MetaMask, Trust Wallet, Coinbase Wallet, or any other software wallet that is commonly used. These emails look official, appearing to be from the real company, but they aren’t. If you follow the instructions given by the email, you’ll end up providing them with the information they need to recover your wallet on their end and take all your funds.

No cryptocurrency wallet provider will ever email you looking for information to verify an account, or funds, or whatever else. Scammers try to make it seem that something is amiss in order to gain your trust. There’s a good chance that you’ve already received or will receive emails regarding wallets that you don’t even have, which is a sign of a phishing attempt. If you do receive an email, just ignore it, and report it to the relevant party if you want to.

Alternatively, you may ask a question on a forum or Discord server. Then, you’ll subsequently receive a message from someone saying they can help with your problem, but that they need your recovery phrase or private keys to do so. Once again, no one will ever need that information to help you, and giving that information away is the same as giving away your credit card details.

All that means that it’s hard to trust other parties in crypto when you’re looking for help, as it could very well be someone looking to scam you. There are a few ways to mitigate the potential to be scammed, not the least of which is never clicking links sent to your email, especially if it’s to “verify” something. Otherwise, only request help through official channels on discords, or through a platform’s help section, don’t assume that the guy on reddit is actually looking to help you, or that he does work for the company. 

Much like in real life, you need to just be as careful as you can be to avoid scams.

Digital Asset Custody

The collapse of FTX exchange brought what was already a common trust issue for many crypto enthusiasts to the forefront: custody. The phrase “not your keys, not your crypto” has long been the rallying call for pundits who believed that you should store your own crypto assets rather than let someone else. You never know what they might be doing with it. 

Evidently, FTX was doing bad things with it, and lost their customer’s funds. Silicon Valley Bank and the others that collapsed in March weren’t much different. Whether you went to withdraw your Bitcoin from FTX, or your USD from Silicon Valley, you couldn’t. Of course, were the assets in your custody already, it would all have been a moot point. 

Now the question becomes whether you can trust another party with your assets, digital or otherwise. While setting up and maintaining your own cryptocurrency wallet isn’t difficult, it’s likely a little more technical than a lot of users are ready for. Add in the phishing scams that target non-custodial crypto wallet users, and it becomes even more daunting for users to be the custodian of their own assets. For them, it’s much easier to just let an exchange hold the funds.

However, you can help mitigate these concerns by learning about cryptocurrency wallets, how to set them up, use them, potential scams that you could run into, and the best security practices you can use to safeguard them. One of those practices is instead to get a hardware wallet rather than a software one. Hardware cryptocurrency wallets are generally safer than software ones because they aren’t connected to the internet, and any scammer or thief would need the physical device to move your funds anywhere. This makes it a much more difficult proposition to have your funds stolen. Companies like Ledger and Trezor are some of the most popular hardware wallet providers.

Closing Thoughts: Don’t Trust, Verify

Trust within the cryptocurrency sector, at least at this stage in its development, is something that is going to have to grow over time.

With regulatory issues, bad actors looking to scam you, and the decision of where to store your assets all looming over the sector, it can be hard to have that trust. But it’s important to remember that as long as you do your own due diligence, learn about how all the systems you interact with in crypto work, and take the effort to custody your own assets, you can mitigate mistrust. 

Article tags

Beginner
cryptocurrency
guide
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

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