Experts Discuss How Public Trust, Transparency Can Be Bolstered In Cryptocurrency Markets

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Recent disclosures about money laundering, dishonesty and fraudulent activity by Binance, FTX and other organizations have seriously damaged public trust in the crypto asset market, especially concerning trading platforms. Rebuilding trust demands a firm commitment to safeguarding investors’ interests and transparency. Bruce Tupper, president and creator of CoinRegTech, and Tyler Williams, Galaxy’s head of legislative and regulatory affairs, offer insights on how these can be achieved in cryptocurrency markets.

They propose two key measures — Off-Chain Transaction Reporting and Proof of Reserves (PoR) Reporting — as essential steps for trading sites to adopt. These measures would enhance transparency and protect customer investments, albeit further actions may also be necessary.

The United States Congress urgently needs to enact comprehensive legislation addressing digital assets. Notable among recent measures is S. 3087, introduced last year by Senators John Hickenlooper and Thom Tillis, which mandates trading sites cryptographically verify their ability to fulfill customer deposits monthly. Furthermore, Representative Don Beyer’s H.R. 5966 seeks to improve transparency by requiring platforms to disclose all transactions involving digital commodities to a CFTC-licensed trading repository.

These legislative initiatives take advantage of the auditability and transparency of blockchain technology. Blockchains offer immutable, transparent and real-time records, as opposed to off-chain transactions, which are not visible on the blockchain. Thus, any asset present on a public blockchain may be verified by regulators and customers.

A key concept gaining traction is proof-of-reserves (PoR), where platforms prove control over customer assets by committing them to a public ledger. Consequently, through the release of these datasets, investors and authorities may confirm the reliability of trading platforms and assets.

Legislative efforts place a strong emphasis on separating customer assets from trading platforms’ operating money to reassure regulators and consumers in the event of insolvency or liquidation. Some platforms have willingly adopted PoR attestations, a practice integral to any complete legislative framework. Senators Kirsten Gillibrand and Cynthia Lummis recognized this necessity and reintroduced S. 2281, which requires cryptocurrency intermediaries to have PoR and submit to yearly audits.

While these transparency measures have good intentions, some legislators have shown skepticism and have even attempted to obstruct the advancement of the crypto asset sector.

The PCAOB received a letter from lawmakers in January criticizing PoR and labeling it a fraudulent audit. Appropriately, the Public Company Accounting Oversight Board (PCAOB) issued a letter of caution to investors regarding PoR attestations. Consequently, auditing firms have withdrawn from engagements, and the board’s position is at odds with what a prudent accounting regulator ought to do.

However, S. 3087 addresses many of the criticisms by emphasizing that PoR should complement, not replace, standard audit policies.

Trading platforms ought to be subjected to the same standards as conventional exchanges and custodians. Regular PoR attestations and digital asset transaction reporting provide increased transparency and federal regulation, guaranteeing consumer safety.

Ultimately, the industry is committed to regaining trust through initiatives such as Off-Chain Transaction Reporting and PoR. Cooperation between industry stakeholders and policymakers is essential to moving forward. With the passage of these measures, there is an opportunity for blockchain technology and trading platforms to foster a new era of financial innovation in the United States, a goal worthy of Washington’s support.

Crypto industry players such as Bit Mining Ltd. (NYSE: BTCM) are likely to be doing everything they can to bolster transparency as well as public trust in what they do, and the suggestions of these two experts could be something they give serious consideration.

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