As with many emerging technologies and industries, cryptocurrency has had its fair share of controversy. More than its fair share, some would argue. The list is vast, but it includes everything from exchange collapses and ponzi schemes to crypto-related scams.
In 2014, the Japanese-based Bitcoin exchange Mt. Gox, which was the world's largest exchange at the time, abruptly suspended trading and filed for bankruptcy.
It announced that it had lost about 750,000 of its customers' Bitcoins, alleging that some had been stolen. Ten years later, many customers are still waiting for payments to be made by the Mt. Gox trustee.
Perhaps most well-known is the collapse at the end of 2022 of cryptocurrency exchange FTX, which was the world's third largest exchange at that point. Hundreds of thousands of users, including many Australians, lost billions of dollars' worth of holdings. The company's former chief executive,
Sam Bankman-Fried, has since been convicted of fraud and sent to prison.
Beyond the high-profile scandals, scams involving cryptocurrency also continue to plague individual investors. According to the Australian Competition and Consumer Commission (ACCC), there are a few main crypto scams to watch out for.
The first are fake cryptocurrency exchanges or apps that are designed to mimic real equivalents in order to either capture people's details and steal their crypto, or get people to invest money in a fake exchange or product.
Another is similar to a pump-and-dump scheme with shares. People will be offered the chance to buy into a much-hyped initial coin offering, but once the value of the coin hits a certain level, the scammers will cash out, leaving other participants high and dry.
Fraudsters pulling other scams, such as a romance or extortion, will also try to convince their victims to send them cryptocurrency, which the ACCC says is harder to track and easier to move overseas.
Australia's National Anti-Scam Centre reports that in 2023 there were 3195 scam reports involving cryptocurrency as the payment method. In total, $171 million was reported lost, which was 6.5% higher than in 2022.
Road to regulation
These sorts of incidents - whether at an individual or institutional level - have led to calls for tighter government regulation of digital assets and the cryptocurrency industry. The process is under way in Australia.
In October last year, the Federal government released a consultation paper which outlined a proposal to establish a regulatory framework for organisations, like cryptocurrency exchanges, which facilitate the trading of digital assets and hold those assets as custodians on behalf of individuals.
Stephen Jones, the assistant treasurer and minister for financial services, said the government was focusing on exchanges in particular because of the number of large-scale failures in recent years and the harm that they have caused consumers.
"Collapses of crypto platforms, both locally and globally, have seen Australians lose their assets or be forced to wait their turn among long lines of creditors. The proposed reforms seek to reduce the risk of these collapses happening by lifting the standard of the operation of platforms and increasing oversight."
The government noted last year that further consultation on draft legislation related to the proposal would take place at some point in 2024.
What the future holds
So greater regulation almost certainly looms on the horizon for players in the industry, as does the likely rollout of more crypto-related spot ETFs for Australian investors. But what else could the future hold for cryptocurrency?
"I think that payments really are going to be the future of cryptocurrency. They're already here, of course, but I think it's just going to increase in adoption, especially when it comes to commerce and cross-border payments," says Karl Mohan, from the exchange Crypto.com.
Beyond the payments potential, he believes a second major trend that will continue to emerge relates to real-world asset tokenisation.
"What does tokenising real-world assets mean? You could have things like shares and bonds being built on the same infrastructure and technology that cryptocurrencies have been built upon. The reason being is that the blockchain is faster and simpler to transact with.
"For example, if you had shares that you wanted to transfer to someone else, it would be easier to transfer them directly rather than going through a number of intermediaries, as is the case today. And because these transactions would be recorded on the blockchain, that would make it simple to identify who owns the shares, as well as information such as the dividends being paid out.
"It's in its infancy at the moment, but I believe that's going to be one of the other future directions of cryptocurrency technology: being adopted for real-world use cases," says Mohan.
Three tips to keep your crypto safe
Cryptocurrency scams are an unfortunate reality, which is why Crypto.com's Karl Mohan says it's important for holders to understand the consequences involved and the basic steps they can take to avoid scams.
1. Practise good online hygiene
"The first part is getting the basics right. It's critical to never, ever share security details like your password with others or to click on links from unknown parties.
"And if someone contacts you directly purporting to be from an exchange or somewhere else, ignore it and reach out to the organisation directly if you have concerns."
2. Be wary of unrealistic returns
"When it comes to investments scams, it goes back to the basic premise: there's no such thing as easy, fast returns.
"If someone's promising you returns of 50%, 100%, 200%, it's not real. You might read about some crypto bro earning that, but that's pure luck, or at least it's not the norm."
3. Once it's gone, it's gone
"If you send someone some Bitcoin because you believed who they said they were, there's no clawback. It's very different to a bank transfer where you can call up your bank to try and reverse it.
"We've put in systems to try to prevent this, such as having a 24-hour lock before a transaction can be made and sophisticated tools that can see if the person you're sending crypto to has been flagged as suspicious. But once those funds leave, they're gone."
