Crypto will emerge stronger from recent challenges

Reuters/Dado Ruvic/Illustration

Despite the bankruptcies and shifting market dynamics seen by the cryptocurrency industry last year, it in fact made good progress in building new products and services.

It’s now more accessible and shows strong potential for wider adoption in the future. 

The ecosystem will certainly require collaborative effort to recover from the effects of FTX’s crash but the industry should not be defined solely by negative sentiment. It’s important to remember the blockchain industry is still in its infancy and it is the way it responds to criticism and overcomes challenges that will define its success.

To get the real picture of the crypto ecosystem today we need to consider milestones for digital assets. 

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Scalability and accessibility

Scalability, which means building blockchain’s capacity to grow while accommodating increasing user base, is one of the most important issues for blockchain developers.

A network that’s not scalable cannot process vast amounts of data and leads to more network fees and inefficiencies. 

Scalability is crucial for the crypto ecosystem’s capacity to optimise transaction processes and ensure the efficiency of the blockchain network. 

Last year Ethereum introduced The Merge, a unique scaling solution which led to the drop in Ethereum’s energy consumption by an estimated 99.95%.

Developers have continued building towards a blockchain-powered future by allowing more users to benefit from digital asset-related services. 

The increased use of these solutions by regulators globally – and in the Mena region in particular – has set the scene for expanding adoption of crypto beyond retail.

The International Digital Economy Court in Dubai International Financial Centre and Abu Dhabi Global Market Courts have introduced blockchain technology for the enforcement of international commercial court judgments.

Despite setbacks crypto adoption has seen growth, both among retail users and institutions adding blockchain-based tools and services to their arsenal. 

Many global firms have benefitted from leveraging blockchain solutions, including KPMG, Robinhood, JPMorgan, Fidelity, Tesla, Instagram, PayPal, Accenture, BlackRock, Nasdaq, McDonald’s, Google Cloud, Mastercard, Sony, Nike and more. 

The Mena region has seen growth in retail adoption of blockchain, where Binance secured partnerships with Majid Al Futhaim, Jebel Ali Resorts, Palazzo Versace in the UAE and Eazy Pay in Bahrain. 

These achievements demonstrate the ambition to use digital assets to improve customer experience, provide flexible payment alternatives and streamline corporate processes. 

Security and compliance

Blockchain industry players must now focus on ensuring utmost security and compliance on their platforms to protect users from bad actors in the digital asset world. 

Collaboration between cryptocurrency industry developers, regulators and policymakers cannot be overlooked. Binance increased the number of licences and authorisations secured last year to 14, with permissions granted in business hubs like the UAE and France and licences to operate following soon in Poland, Sweden and Bahrain.  

As blockchain firms have grown their compliance teams, the identity verification protocols have also seen improvements.

Only users who have gone through identity verification protocols with government-issued documents are able to use digital asset services on the Binance platform.

We can expect to see more industry players implementing robust know-your-client measures and anti-money laundering policies. 

Key lessons learned

Industry leaders must remain flexible and responsive to any disruptive occurrences in the market. 

This is key as crypto platforms have been focused on enhancing technology and increasing adoption, making them vulnerable to industry-wide risks and disruptive events.

Companies should mitigate this risk by increasing transparency, streamlining risk management practices and rebuilding user trust.

Commitments include never using native tokens as collateral, sharing live proof of assets, keeping strong reserves, avoiding excessive leverage and strengthening security protocols.

Crypto and blockchain technologies have the potential to make a real-world change on a global scale, particularly in times of crises that destabilise the traditional financial system. 

Clear regulations and fraud protection have allowed millions of people in the region to pay for basic needs with crypto while traditional banks did not have capacity to support them in times of crisis. 

While the rewards of the industry’s labour are not always visible, the crypto ecosystem has come a long way thanks to constant infrastructure development, product releases and enhancements to transparency, security and compliance.

The UAE is ahead of the curve when it comes to the crypto regulatory environment and adoption, with the government remaining a partner for strong user protection, regulation and compliance.

As the region defines the global standard in this space, safeguarding user safety must remain a top priority. 

The industry must continue to focus on engaging with regulators and policymakers to ensure the secure and sustainable growth of the crypto ecosystem, fuelled by regulation that protects innovation and market security.

Alex Chehade is executive director and general manager of Binance FZE, Dubai