Charles Hoskinson declares war on crypto exchanges
Charles Hoskinson, co-founder of Ethereum and founder of Cardano, declares war on centralized crypto exchanges. According to him, conflicts about how to deal with identities will be the most important problem in the crypto industry in the next few years. If this battle is lost, there is a risk that cryptocurrencies will collapse.
Identity is the bottleneck of the crypto scene
The power of crypto exchanges hasn’t only been evident since the FTX crash . The trading platforms have long been the Bitcoin wallets with the largest BTC assets ever. Many users leave their cryptos in the custody of crypto exchanges at all times.
The problem: Crypto exchanges now manage so much wealth that they can become a systemic threat to the crypto industry. Ethereum co-founder and Cardano inventor Charles Hoskinson is also aware of this fact.
At the beginning of the month, the programmer will be speaking at the Web Summit in Lisbon, where he will also address the topic of identities. These are by far the greatest danger for the crypto scene, according to a video that Input Output published yesterday. The problem must therefore be solved to the advantage of the scene.
Hoskinson is addressing problems that KYC causes. Further regulation envisaged by the supranational organization FATF adds to current concerns. The internationally implemented travel rule increases surveillance – to the detriment of users, but to the advantage of states addicted to control.
In order to be able to buy cryptocurrencies on a centralized exchange, the user must be identified. But that is exactly where the problem lies. Systems without this feature – P2P exchanges – are significantly less popular.
Identity is the single most important component because it is the final milestone we must achieve before crypto can take over the world.
Explains the American. This fight is the most important of all for the industry. As Hoskinson summarizes:
If we mess this up, then crypto dies.
Charles Hoskinson declares identity war on crypto exchanges
Hoskinson explains why the conflict is so important using a concrete example:
It doesn’t matter if the money transfer is on decentralized protocols as long as the identities are controlled centrally. There is the gateway to the crypto world, which defines the user experience.
Here’s what could happen: Crypto exchanges must follow the Travel Rule. They could interpret the Travel Rule in such a way that they exclude money transfers to non-custodial wallets. Then your cryptocurrencies are permanently trapped in a custody system.
Consequently, the advantage of cryptocurrency will collapse. The entire existence of cryptocurrencies is under threat.
Your cryptocurrencies were then basically stolen from you. Identities are so powerful. So we [the crypto scene] have to control the identities.
Crypto exchanges should not be left to this field. As central companies, they are too vulnerable to states and are therefore always subject to their will.
The smart contract wars are already over. The identity wars are just beginning. Everyone knows that this is the bottleneck and everyone wants to control it. For the good of the crypto industry, we need to ensure that the winner is decentralized.
Banking giant JP Morgan is also developing its own system with Onyx. In the next two years, this topic will become the most important in the crypto industry, believes Hoskinson.
How does Hoskinson intend to solve the KYC problem?
Hoskinson’s approach relies on decentralized identification. It uses Decentralized Identifiers (DID) invented by the World Wide Web Consortium . Instead of on crypto exchanges, users are then identified directly through transactions on the blockchain .
What sounds like a desirable circumstance to Hoskinson certainly sounds deeply dystopian to others. Input Output , the central development studio behind Cardano, is investing in its own DID project called Atala Prism, which has already cost $30 million.
According to its own website , this should increase the trust of end users and regulators in KYC. An introductory video shows that the aim is to bridge the gap between government requirements and the liberal approaches of the crypto scene.
By the way: KYC can not only become a personal risk for end users , actual fraudsters are often unaffected by the supposed security systems .