Fraud is the bane of cryptocurrencies, and when we read about such scams in the headlines, it is generally news and articles about the risky nature of the cryptocurrency industry. But while scams undoubtedly target innocent people's money and often erode faith in cryptocurrencies, they can have some positive side effects. Fraudulent operations create more pressure for effective regulation and forcing stock exchanges and traders to take greater security measures, something without which the industry will not develop as quickly.

Fraud = regulation

According to a CipherTrace report published in January, cryptocurrency scams and theft cost the global cryptocurrency community a total of $ 1.7 billion in 2018.

Although this is very bad news, this loss should be seen as providing a valuable opportunity for the industry to grow. Perhaps the biggest reason is that, as we have already seen in the short history of crypto, frauds and theft have been an important driver of the push towards strong legal regulation of digital currencies

This suspicion that scams create momentum for greater legal regulation has been demonstrated in the experience of most countries where digital currency is popular, such as Japan. In January 2018, Japanese cryptocurrency trading platform Coincheck was hacked, with 526 million XEM stolen (valued at approximately $ 400 million). Around the same time, there were reports that Yakuza was laundering money using digital currencies, while the Japan Financial Services Agency (FSA) was warning about the misleading and fraudulent nature of many initial coin offerings.

As a result of such events, institutions in the Japanese crypto field agreed to form the Cryptocurrency Trading Association on April 23, 2018, which includes 16 Japanese exchanges, aiming to establish self-regulatory rules to protect clients and regulate internal behavior, and in October they received official recognition from the Japan Financial Services Agency. . Something similar has been observed in other countries where the digital currency is popular, be it South Korea, Russia, America, the United Kingdom, Switzerland or the entire European Union. Regardless of the country, cryptocurrency regulation and standards are largely proposed to protect consumers from the threat of fraud and illicit activity.

David Saper, Blockbid CEO, tells Cryptonews.com: "Fraud in the cryptocurrency space has led many projects to give greater importance and priority to their security protocols, in order to better protect company assets and users." But while fraud undoubtedly plays a role in highlighting the need for legal regulation, it must be noted that other factors have clearly played a role. “It is not fraudulent behavior that encourages and enables regulatory developments,” says Iqbal Gandham. “After we saw more institutional players enter the market and develop their own use of blockchain technology, this has sparked more regulators’ interest in the cryptocurrency industry. ”

Fraud and Adoption

Given that the sheer extent of illicit activity pressures the crypto industry to organize and develop itself, frauds may also lead to greater dependence in the long run. The scams had the effect of increasing the early adoption of digital currencies. This might sound odd, but one of the factors that helped cryptocurrencies maintain their growth rate for users in 2018 was the extent to which they offered to make profits by fooling others. Of course, this view is controversial, and not everyone in the crypto space will agree with it

“I think users are more likely to be attracted to the crypto industry because of its innovation and its position as an emerging industry,” confirms David Sauber. "However, I think others were attracted by digital currencies in the early days because of the opportunity to make money quickly, albeit in an unethical way."

And with the influx of fraudsters, the cryptocurrency market is expanding, attracting additional members of the public with lucrative promises made by deceptive investment organizations. None of this means that fraud is a good thing in and of itself. In fact, Bitcoin has emerged as a digital currency due to its financial transparency and security, so it is clear that fraud is something that the industry must work hard to eliminate, in order to reach its full potential.