(Bloomberg Opinion) -- It’s time the cryptocurrency community got its act together.
In this relatively new industry, hacks and frauds have been greeted with a shrug and largely dismissed as part of the process of building a superior financial system.
True believers are convinced that Bitcoin and its siblings will overthrow fiat currencies and the existing structures to which they’re attached. At their most basic level though, Bitcoin, Ether and the hundreds of other altcoins are simply products.
They’re products designed to transfer, accumulate or store value. And any time a new product is introduced, customers need to be convinced that it’s superior to the existing offering.
Crypto promoters sell a story of tighter security, better privacy, lower costs and greater independence.
The credit card sector also claims that mantle of security (and doesn’t really bother with the others). The difference is that banks and card brands like Visa and Mastercard back it up by actually protecting consumers and merchants from losses. The same can’t be said for cryptocurrencies.
Losses from crypto attacks now total around $2.3 billion, according to CryptoAware. The Mt. Gox hack four years ago remains the largest and most infamous, yet CryptoAware’s database counts more than 40 distinct incidents, including an average of one per month over the past year. Counting the Coinrail breach – the ninth biggest – 2018 is on track to be the busiest year for hacks on record.
With the crypto space getting more valuable, and supposedly more mature, consumers should expect better security. Not just because it makes them sleep better at night, but because it’s their money being lost. At least with deposit insurance and credit card protection mechanisms, consumers rarely lose when thefts occur.
Regulators and credit card companies expend so much energy, and money, securing their infrastructure precisely because they’re the ones left out of pocket when failures occur. In the crypto space, the lack of such a downside leads to moral hazard.
What’s allowed this to flourish is the raft of consumers too blinded by the prospect of vast riches to ask basic questions about security.
Meanwhile, early regulation centered around money laundering and related know-your-customer rules. The sector has pushed back against any attempts to label these products securities, knowing full well that such a moniker would bring with it stricter scrutiny.
With a combined market cap of around $300 billion, the cryptocurrency industry wants to be taken seriously. It’s time to show it deserves to be.
©2018 Bloomberg L.P.