Coventry (UK), November 15 (The Conversation) Changpeng Zhao, founder and CEO of the world’s largest cryptocurrency exchange Binance, has called for more regulatory clarity regarding the crypto market. He has said this in the midst of chaos in the crypto currency market and investors are estimated to have lost two thousand billion dollars in the last one year.
“We need to clarify and improve regulations in the crypto market,” Zhao said at the G-20 summit in Bali.
Though regulators are not the only ones responsible for protecting the interests of the people, the industry should look for new models that can help in this.
The recent collapse of FTX has had an adverse effect on the entire cryptocurrency industry. FTX has also filed for bankruptcy proceedings in the US. Its total business value at the beginning of this year was estimated at US$32 billion.
At the same time, bitcoin, the strongest digital currency since the FTX crisis, hit a two-year low. Cryptocurrency allows traders or investors to buy and sell without the need for banks and middlemen.
Blockchain technology facilitates the interchange of cryptocurrencies on exchanges such as FTX and its rival Binance.
Transactions are verified through consensus by a group of validators who are generally referred to as ‘miners’.
The ‘miners’ who perform the verification work solve complex mathematical puzzles to do so. However, when it comes to settling these transactions, Binance and its affiliated companies use the same “limit order book” model as any traditional exchange such as the New York Stock Exchange.
This means that it is a centralized framework that brings together buyers and sellers, and crypto exchanges supply cash to buyers and sellers and charge merchants for transactions. Such a structure has somewhat exacerbated the recent developments in the crypto market.
FTX’s centralized model allowed loans to troubled crypto companies earlier this year. Although emerging models, decentralized exchanges operate under separate rules for pricing and governance of cryptocurrencies may mitigate such risks.
They allow investors to buy and sell tokens at an algorithmically determined price. This automated model does not rely on professional market participants, instead individual investors supply cash and collect a portion of the fee from the transaction.
The Conversation Amit Raman
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