This article in CoinDesk identifies yet another Exchange that is likely to lose, or steal, the assets that claim to protect. Bitcoin, and some other cryptocurrencies, establish trust between participants that send and receive the assets the system controls (bitcoins, in the case of Bitcoin). However, as Mercator’s Cryptocurrency Trust Model demonstrates, no trust remains when the cryptocurrency is removed from its native environment. It appears this lesson, proven true with Mt. Gox and other failed exchanges, is being proven once again in Australia where the potential failure also falls beyond the reach of Australia’s regulators:
“Australia’s top securities regulator has suggested that it cannot at present intervene in a long-simmering dispute involving bitcoin exchange service Igot and unhappy customers.
In comments to The Sydney Morning Herald, a representative for the Australian Securities and Investments Commission (ASIC) said that an investigation into Igot would only take place if the company had failed – a charge alleged by customers who say their funds remain locked up and that has denied by the company.
The representative told the news source:
“As with any company, if it were to go into administration or liquidation and there was suspected wrongdoing or breaches of the law, it would be a matter we would look into.”
Scrutiny of Igot, which has been accused of fraud in the past, resurfaced this week following a report by the Australian Broadcasting Corporation.
Igot founder Rick Day told the outlet that his firm was having difficulties paying customers.”
Cryptocurrencies create trust between untrusted entities over untrusted and unreliable networks using a complex stew of math and economics. Only by understanding exactly how this stew operates and where it no longer functions, can individuals, companies, and regulators recognize where trust is no longer maintained by the system and must therefore be replaced with some other trust system, such as legal frameworks and regulatory frameworks. Today too many exchanges operate outside of both. From a broader perspective, too many business people investing their time and money into blockchain derivatives have also failed to take these issues into account.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
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