Quote from: wiser on July 10, 2018, 10:24:43 PM

Quote from: Brandon Cheliak on July 10, 2018, 10:19:00 PM

Quote from: wiser on July 10, 2018, 09:17:52 PM

Quote from: Brandon Cheliak on July 10, 2018, 07:17:16 PM

Cryptocurrency Exchanges Should be Self Regulated - US Think-Tank
https://cryptovest.com/news/cryptocurrency-exchanges-should-be-self-regulated---us-think-tank/

I agree with this sentiment, but what it will take for self regulation of this industry is a group of highly motivated individuals to get the ball rolling. What better place to get the brainstorming started than right here with the DNotes community?

First we are going to need to draft up policies, guidelines, and standards that the entire industry agrees to abide by. For those who are unfamiliar with these concepts, here is a great breakdown: https://frsecure.com/blog/differentiating-between-policies-standards-procedures-and-guidelines/

Procedures are decided by individual exchanges in house, but we can start a list of proposed policies, guidelines and standards that will help keep cryptocurrency innovative, competitive, safe, practical, and ethical. Add to this list of suggestions as you see fit.

POLICIES
-Universal know your customer policy on transactions involving large sums of money
-Abide by the laws in your jurisdiction(s) of operation or make a good faith attempt to do so if operating in a new sector that is devoid of applicable legal framework (eg. ICO)
-Customer funds may not be traded, sold, or transferred (without good reason and due care) unless these actions are initiated by the customer who owns those funds.

STANDARDS
-Minimum fractional reserve requirements that must be met by all institutions who practice fractional reserve banking schemes
-Quantification of usury as a percentage and condemnation of its practice
-Transparency in listing fees and maintenance costs
-Truth and transparency standards in advertising
-Loan screening/background checks above a certain dollar value threshold

GUIDELINES
-Offer responsive customer support
-Provide business credentials and contact information to your customers
-Report suspicious activity to the proper authorities

How about NO fractional reserve banking at all. Just use funds the way the customer thinks they are being used. If a customer wants to tie up some funds in a loan, maybe said exchange could offer some options. A few exchanges already offer the ability to lend to margin traders at interest and that's always fun to participate in if you have some BTC you're willing to tie up for a few days. There could be some kind of interest bearing loan for a set amount of time where the user lends money to the exchange for the exchange to invest in infrastructure or whatever and the loan gets paid back in an agreed upon manner. But I don't think an exchange should ever believe that because they consistently have a certain amount of funds on their exchange at any given time, they are free to spend those funds in other ways. To be able to do that, you really need to be a bank, not an exchange, and it's arguable as to whether or not banks should even be doing that in the first place.

The way in which limit orders are processed needs to be fully disclosed. Most people assume limit orders fill in the order they were placed. That should be stated. If there's a different process, that should be disclosed as well. If there are hidden orders, that needs to be disclosed (not the individual hidden orders, but the fact that there are hidden orders), and the way to place a hidden order should be clearly explained.

Any wallet maintenance that disables any part of the wallet function (such as withdrawals, deposits, etc.) needs to be done with very regular progress updates and ETAs for going back online. And if for any reason an ETA can't be reached, then a new ETA with a good explanation for why earlier one wasn't reached needs to be posted. All that info should be accessable from each user's wallet page. That will cut down significantly on support requests so I don't see why more exchanges don't do this anyway.

State of the art security for customer funds needs to be a high priority. I believe specific security standards should be developed by IT people who understand that stuff. Related to that, there should be standards set for how many "glitches" are allowed per day or any other interval, where things aren't working as expected, and standards can be drawn up for how to minimize those issues, which are usually related to scaling. Some kind of minimal infrastructure could be a requirement to receive a certain type of rating (such as A, B, C, etc.). I think in a similar way to how there are standards and recognized procedures for how to build bridges, automobiles and airplanes, there can be those standards and procedures for how to build exchanges. Some things that you can throw together in your garage may be OK for a very small group of people but won't hold up when your user base grows beyond a couple thousand users.

All fees need to be clearly disclosed both ahead of time and as transactions are being set up.

A really nice feature BitTrex has is the ability to go straight to a coin's wallet from the market page so you can make a deposit of that coin without leaving the market page. Another feature I like in BitTrex is having a coin hyperlinked to its market so you can go directly to the desired market from your wallet.

Thorough transaction records need to be kept and made accessible to users via export and API at any time (with maximum allowed "outage" periods). Trading records need to include what coin was bought, what coin was sold, and how much of each, time stamp of trade, and what fees were paid in what currency.

Full disclosure on procedures for customers reclaiming funds in the event of a hack. I would like to log in to an exchange and be able to know ahead of time how the exchange will handle the return of my funds if despite all security measures, funds get stolen. The main reason is that the better prepared to handle an event such as a hack resulting in loss of funds, the less likely such an event is to happen.

I'm sure I can think of more...

My initial thought would be to agree with you on banning fractional reserve lending, but if a digital group wants to or needs to capitalize on this untouched opportunity then maybe they should be allowed to? All we can do is inform the public to the best of our abilities so they can make wise decisions. Since the majority of new fiat money is created through fractional reserve lending, a digital token should be able to function in the same manner. But don't get me wrong, I think it will end the exact same way as the countless other currency debasement schemes that have taken place over the past several thousand years; but they will never gain such widespread adoption with an informed public. That being said, the industry needs some way to fund oversight and enforcement, because if there isn't someone willing to back up the rules, they aren't worth the paper they were written on. I highly doubt that most cryptocurrency users will be willing to fork over the money to protect their investment, so some sort of debt based inflationary monetary system may be a necessary part of the equation.

That's a tough one, and I guess people and businesses should always have a choice. So, in that case, some standards for "appropriate" fractional reserve would be in order. However, I would still reserve the very top rating to exchanges that don't engage in this. I personally think that fractional reserve banking isn't really the place of an exchange, plus the exchange already profits on trading fees so there isn't a need to try to figure out a way to make money while making everything free (as an American bank kind of has to these days). The trading fees are already accepted practice. Some exchanges discount for makers, but not all do and it's not a major expectation. So, it's not like the exchanges can't make money without fractional reserve schemes.

I would consider many cryptocurrency/token exchanges more similar in functionality to a bank, than a currency or securities exchange. As soon as an exchange engages in lending activities, I'm pretty sure that puts them into a different regulatory classification. Many financial institutions offer currency exchange services, but no currency exchange services can offer other financial instruments like financial institutions can.