We Are Seeing The Dangers Of 3rd Party Counter Risk

in #hive-16792215 days ago

We all heard it before: not your keys, not your crypto.

This is a mantra that was used almost exclusive a number of years back. Over time, we saw it waning a bit as larger firms got involved. With exchanges exploding in size, people felt confident in them.

Perhaps there is a lesson here. We have to be careful with who we trust.

  • Coinbase is now sharing that crypto depositors will be traded like creditors in bankruptcy.
  • Celsius is not allowing withdrawals and could face more troubles
  • Blockfi is being sued in what seems to be most states
  • Binance is apt to shut down withdrawal at any moment
  • Do we even need to mention Bittrex?

This is exposing what was Satoshi wanted to design around.



Counter Risk

Cryptocurrency is a very immature industry. In fact, it is more accurate to describe it as embryotic. We are involved in something that is providing a paradigm shift. For that reason, the potential is enormous.

Of course, the unfortunate aspect to that is all kinds will come out of the woodwork. This means we see a great many who have nefarious intentions.

Even if the people are genuine in their intent to run a successful business, the reality is starts ups are difficult. Even for something like Coinbase, the path is mired with a lot of pitfalls. Moving from niche company to major financial player is not easy.

For this reason, central exchanges should be used for trading and not holdings.

Counter risk adds another variable to our investing. This is problematic because things are tough enough without that. We are confronted with the issue of what coins/tokens to hold as well as the systemic risk from the markets in general. When confronted with the risk associated with an application or platform, that only adds to it.

For a publicly traded company like Coinbase, there are some safeguards in place. However, there is still another degree of risk as compared to the existing financial system.

And, as we know, the safeguards might not really be that safe anyway.

Instilling Trust

What we are dealing with is an issue of trust. In fact, this is the entire basis of the financial and monetary system. Ultimately, we are in a search for consensus.

The present financial system is based upon the premise of size along with regulation means trust. This is what the politicians and bureaucrats are looking to bring to cryptocurrency. They believe regulation is how we generate a trustworthy system.

Of course, the track record there is spotty at best. We know the trusted institutions end up faltering. Often, the policies put in place have unintended consequences which lead to larger amounts of pain.

Cryptocurrency was designed based upon the premise of moving trust away from institutions and humans. Knowing they are flawed, could there be a way to ensure the stability of a monetary system without having to depend upon human decisions?

This was the emergence of Bitcoin. It was structured in a way that where counter party risk was eliminated. No need to trust anyone. A bunch of anonymous computers around the world were incentivized to ensure the transactions in the ledger were recorded properly.

Obviously, at the blockchain level, this is evident. As long as there is a degree of decentralization, we can safely trust the process. The challenge arises when we move passed this.

This is a dilemma because, quite frankly, additional layers are required to create a thriving financial and economic system. Blockchains recording transactions is only part of the process.

Greater Danger In A Young Industry

We are working on how to evolve things. There are going to be a lot of train wrecks going forward. This is simply how development occurs.

At the moment, post-UST implosion, we see questions about Tether and other stablecoins. Probably next on the list is USDD which is a token that was not built around value.

Nevertheless, this is all part of the process. Unfortunately, being so young, there is a greater chance of 3rd party counter risk than our established system. This is magnified the further away we move from the base layers.

Here is the quandary: we need second layer solutions to expand, grow, and create a legitimate financial system to serve the global needs. However, we are confronted with how to do that in a manner that reduces the risk involved.

For the moment, it appears, we are only adding to it.

This is where governments believe it is their job to step in to "protect investors". That said, we can see divergence between the track record and what they believe. The Great Financial Crisis, after all, was created by the rating of junk debt as high quality, unleashing a collateral crisis that collapsed the global economy.

Of course, tens of millions lost their jobs, homes and a lot of wealth due to this. So we can certainly dispute how the effectiveness of their regulations in protecting anything.

We will see the dual approach being employed. It is evident the regulators are circling the wagons. However, the industry will keep building and expanding. Through this, we will see experimentation, bringing up new ways to reduce the counter party risk. Ultimately, decentralized ledgers/wallets could serve the purpose. The question is how efficient can they be?

In the meantime, we each, individually, have to focus upon doing this ourselves. We have to be careful who we trust. There was a lesson applied with the rug pulls during the DeFi craze. However, there are levels of risk higher up the spectrum.

It is what we need to pay attention to.

If you found this article informative, please give an upvote and rehive.

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I use Binance exchange sometimes for trading, and sometimes as a bridge between different blockchain networks. For main coins that are in many liquidity pools of different DEXES, I prefer to use Paraswap or 1inch to find the best rates.

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That is a smart way to use it.

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I feel that no system is built without loopholes, I've been pondering how viable it would be if exchanges are only used for trading and not holding, will there be another option to forestall better security? I guess this talk of protection and security is why government agencies will be looking to place regulate crypto.

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Imagine being told your wealth has be siezed following a bankruptcy?

Now that isn't a loophole but a deliberate implementation that's frankly injust. Centralised exchanges are not exactly crypto friendly in the long run...

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Centralised exchanges are not exactly crypto friendly in the long run...

This is unarguably true, I have just been thinking how people would react to better decentralized options.

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That you have to fight for it in bankruptcy court like any other creditor.

So users of the exchange are effectively lending money to it by that mindset.

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Well with the original premise of Bitcoin, there were no loopholes.

Your keys, your crypto. Fairly simple.

However, rather limited in what it can do.

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Well, I still believe crypto is in its early stages, I guess we don't expect everything to click and be perfect instantaneously, there's time to get it right

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This is where we have smart contracts powering decentralised exchanges. Developments has to be upon this structures, holding liquidity via smart contract addresses, enabling instant swaps, this is where the most security measures has to be taken.

Tokenisation of decentralized wallets to create a medium of governance and control, serving as a risk management that protects against centralisation...

DEXs have the power to take the industry to a whole new level, this is my personal conviction...

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Without a doubt. However, who writes those contracts? How do you access them? Who is holding it>

There are a lot of variables since there is more needed than just exchanges.

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The crypto industry was supposed to disrupt the legacy system but instead it has pretty much become the same.

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I am not sure it is the same. Crypto is still too small to be a major factor.

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This was the emergence of Bitcoin. It was structured in a way that where counter party risk was eliminated. No need to trust anyone. A bunch of anonymous computers around the world were incentivized to ensure the transactions in the ledger were recorded properly.


You don't really think cryptocurrencies, with their claims (e.g. to overtake the role of money worldwide) and their impact on the financial industry, escape the attention of major intelligence agencies?

The fact that cryptocurrencies can continue to flourish relatively undisturbed is rather a pretty sure sign that these intelligence agencies have now found a way to influence the evolution of the cryptosphere and its cryptocurrencies in their favor.

Whoever controls energy prices also controls the values of cryptocurrencies. If energy prices explode as they are currently, the values of cryptocurrencies erode.

Chess. 😁

Whoever controls energy prices also controls the values of cryptocurrencies. If energy prices explode as they are currently, the values of cryptocurrencies erode.

If that is the case, then you could say that for the entire monetary and financial system.

So you are claiming Russia and Saudi Arabia are the major money players in the world?

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If that is the case, then you could say that for the entire monetary and financial system.

You got it. Driven by the US and its pets. If it were not so, both would cease to exist in their present form.

So you are claiming Russia and Saudi Arabia are the major money players in the world?

What brings you to this very question? 😁

Treating central exchanges like a shop where you want to get in pick up you want and get out should be the habit, in other words on ramp and off ramp.

Trusting third parties with our crypto defeats the purpose of crypto, we should be able to fend for our cryptos ourselves, if we can remember that at all times and apply it then falling victim of having to seat with restricted withdrawals will be less of a concern.

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I need to find a place to move my monthly buys from Coinbase to. I already started moving my ATOM out, but I have about six other tokens that I buy each month which I need to store somewhere. Confidence in Coinbase is definitely down right now as well as most of the other central exchanges.

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Yes there is a reason why confidence is waning.

I moved my stuff out, didnt have much but no point in keeping anything on there.

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I'll have to work on that this weekend and next week.

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How come they freeze people's money? I feel like people should dump those tokens whenever they resume transactions.

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We all heard it before: not your keys, not your crypto.

I've heard of that saying a million times but I think it's only been the last few days where I've come to appreciate its simple wisdom. Really the only good thing (if you can call it that) from all the defi debacles recently is that the crypto crowd is becoming more wise and experienced from each shock and aftershock that comes one after the other...

There's very little I trust in this world and even less I trust when it comes to dealings with other people and putting trust/faith/stock in them. Throw money in there and it's far less that I begin to trust anyone that isn't myself, to do dealings with my capital. Trust is the biggest issue with exchanges both DEX and CEX, unfortunately. We have to trust on so many factors just to be able to get through towards any sort of perceived positive motion in business and in life. Some things are far easier to trust than others, but I don't rank government and it's "regulations" nor any financial institution that has decided that institutionalization was necessary, nearly at fucking all. It's a hard sell for trust on me in the Crypto world, but I was reading the post you linked and I commented on it and all I had to say ultimately was that if we all lived in fear of these things, none of us would truly progress. I guess "progress" is my fun word for the day, as I've found myself using it back to back now multiple times. :P

Posts like this are solid reminders that we need to truly think, in-depth, about where our money/assets/important things to us are kept, how they are handled, and what that ultimately means for us when it comes to accessibility, ease-of-use, or just overall security and safety that we feel when it comes to their holding. Great post! :)

Clearly blockchain has a lot going for it, but using a nascent technology isn’t going to be problem-free.

Perhaps it isn’t the panacea many would have us believe, or certainly not yet, but the potential benefits of blockchain for third-party risk management are compelling.

I wonder how Crypto Insurance could also help reduce exposure for all parties?

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It's one of the issues with the centralized exchanges and we all know they are motivated by the profits. They are also subject to all the regulations and attacks from the mainstream media/governments. So it just seems risky to leave your funds over at those centralized exchanges.

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Looking at the growing impacts of the newly built industry, crypto would probably and most fortunately head towards a more stable path, where it would see progress -but yet in every system,there remain black and white parties,

Some who build up and those who work as a negative force. But the truth is that, the good white forces always have the upper hand in the end, which propels the system forward. Isnt it true?

Watch out for the human traffickers at hivefest. You wont know it until its too late. STAY AWAY! Beware, traffickers can be women or men! They will act nice until they dont. There is human trafficking going on around this type of crypto. I have witnessed it. They literally have attempted my murder and are trying to kill me with V2K and RNM. Five years this has been happening to me, it started here, around people that are still here. Homeland security has done nothing at all, they are not here to protect us. Dont we pay them to stop shit like this? The NSA, CIA, FBI, Police and our Government has done nothing. Just like they did with the Havana Syndrome, nothing. Patriot Act my ass. The American government is completely incompetent. The NSA should be taken over by the military and contained Immediately for investigation. I bet we can get to the sources of V2K and RNM then. https://ecency.com/fyrstikken/@fairandbalanced/i-am-the-only-motherfucker-on-the-internet-pointing-to-a-direct-source-for-voice-to-skull-electronic-terrorism ..... https://ecency.com/gangstalking/@acousticpulses/electronic-terrorism-and-gaslighting--if-you-downvote-this-post-you-are-part-of-the-problem if you run into one of them you may want to immediately shoot them in the face. 187, annihilate, asphyxiate, assassinate, behead, bleed, bludgeon, boil, bomb, bone, burn, bury, butcher, cap, casket, choke, chop, club, crucify, crush, curb, decapitate, decimate, deflesh, demolish, destroy, devein, disembowel, dismember, drown, electrocute, eliminate, end, euthanize, eviscerate, execute, explode, exterminate, extinguish, finish, fry, grind, guillotine, gut, hack, hang, hit, ice, implode, incinerate, kill, liquidate, lynch, massacre, maul, microwave, mutilate, neutralize, obliterate, off, pop, poison, punnish, quarter, ruin, shank, shock, shoot, shred, skin, slay, slaughter, smoke, smother, snipe, snuff, squish, stab, strangle, stone, suffocate, suicide, SWAT, swing, terminate, torture, terrorize, whack, waste, wreck. You better fucking kill me.

Centralized exchange are there just to make profit and anything that comes with it doesn’t concern them because at the end it is just profit. I use binance everyday and I don’t leave a dime there at the end of the day

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A lot of things that are happening with centralised exchanges have a lot to do with the situation best described with the phrase "Small pond with many crocodiles". As the cake getting smaller and smaller due to macroeconomic and geopolitical conditions, fight for the remaining slices becomes more fierce and brutal. At least, this is impression I get.

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