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The crypto market is ripe with the potential to revolutionize the finance world, but a significant obstacle remains: trust. For any business, particularly in finance, transparency is the foundation of trust that needs to be treated with utmost importance.
Understanding the Importance of Transparency in Crypto
When people hand over their funds to a third party, they need to understand who is in charge and how things are regulated. It is also crucial for them to know where their money is going. Without such clarity, how are they supposed to feel confident about trusting a company with their hard-earned money?
In the world of crypto, this issue is even more crucial. Unlike traditional financial markets, where regulations are well-established, the crypto industry is still a newcomer, unexplored in many ways, making it a prime target for various criminals and bad actors.
Recall the collapse of the FTX exchange in 2022—it’s a glaring example of how things can go wrong when transparency is ignored.
When the company filed for bankruptcy, it came to light that FTX had mishandled user funds. Shady business practices and a lack of clear disclosure led to massive losses for investors and sent shockwaves through the entire crypto market. This scandal highlighted the urgent need for stricter regulations and greater oversight across the industry.
Transparency and Regulation: How Are They to Mix?
Regulation is essential for the crypto industry to grow and be seen as legitimate. As more institutional investors show interest in digital assets, the need for clear and consistent rules also increases. Otherwise, they won’t feel confident about exploring new waters, never knowing when they might draw the ire of one watchdog or another.
A good regulatory framework should strike a balance between fostering innovation that comes with blockchain technology and protecting consumers, thus helping crypto gain broader acceptance.
Places like the Middle East, Singapore, and the European Union are already setting the pace with progressive regulations. For example, in April 2023, the European Union rolled out the Markets in Crypto-Assets Regulation framework, aiming to create a unified approach to crypto regulation across its member states.
Among the recent examples, the Monetary Authority of Singapore decided to tighten its AML/CFT regulations and introduce new requirements for crypto service providers. The UK is also taking steps to get in on the action. In 2023, the government passed the Financial Services and Markets Bill, empowering itself to regulate crypto assets and stablecoins.
All these efforts are undeniably important for building trust, legitimizing the crypto market, and paving the way for mainstream adoption of digital assets.
Improving Transparency, One Company at a Time
While global regulation remains a work in progress, that doesn’t mean individual companies can’t already take steps to boost trust in the market. How can they do it? The most straightforward way for them is to maintain open communication about their financial status and operations.
When stakeholders get timely and accurate information, it helps build credibility and ease fears among concerned parties. This is how users and investors can separate legitimate businesses from questionable ones.
The crypto media, unfortunately, tend to focus on the negative side of things—scandals, hacks, or overhyped coin offerings. On the one hand, it’s not hard to see why: such news attracts a lot of attention and readers, which is beneficial for media outlets. However, it also means that legitimate innovations often get overshadowed, and the industry faces a lot more skepticism that could be avoided.
This is why it’s important for crypto companies to proactively engage with the media and use various communication channels to share accurate information. Raising awareness of the public about the positive developments in crypto can build trust and make the industry overall less intimidating. By taking this course of action, companies can establish themselves as credible parties in the market, which, of course, would only be beneficial for their operations.
Key Methods for Building Transparency:
- Engage with the Media: Highlight achievements, innovations, and internal processes to build a proper foundation.
- Promote Leadership: Showcase expertise through interviews and public appearances during industry events.
- Maintain Active Social Media Profiles: Provide regular updates and interact directly with the target audience.
The details of these approaches can differ depending on each company’s goals and how willing it is to be open with the public. The journey toward transparency is a complex one, and not all companies are ready for it from the get-go. It often takes time for the top management to build up to this point and achieve the necessary mindset, but these efforts are vital for the industry’s growth and maturation.
A Transparent Future is a Trustworthy Future
As the crypto market continues to evolve, ongoing efforts to enhance transparency and educate the public will be crucial in legitimizing this industry and driving mainstream adoption. Guardrails and restrictions will be necessary to protect consumers and ensure wider public acceptance.
In the long run, by combining effective communication with robust regulatory collaboration, the crypto industry can grow stronger and capture the interest of the global audience.
This article was co-authored by Su Carpenter and Valentina Drofa.
Su Carpenter is the executive director of CryptoUK, the self-regulatory trade association for the UK’s digital assets industry. Su has an extensive marketing, communications, community programs, and event management background, working across traditional finance, challenger banks, fintech, and crypto. Her roles have encompassed global remits and strategy for large corporates and implementing launch programs for start-up tech businesses. Su has a strong interest in the crypto industry, firmly believing the UK has nurtured and developed a wealth of experience and opportunities for the sector to grow and thrive.
Valentina Drofa is a co-founder and CEO of Drofa Comms, an international PR consultancy specializing in the financial and fintech sectors. She is a global entrepreneur and business leader with over 15 years of working in the financial market. She is a financial market consultant with a PhD in economics and the author of a few books on financial literacy.
