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This column is my post script Previous article Regarding the collapse of Terraruna, I don’t think the topic here is that important.
Terraluna is up to date “Mountain Gox Moment” For encryption. The now infamous exchange, which once processed 70% of the world’s transactions with Bitcoin, collapsed by early 2014, as it was revealed that most of the coins had been stolen from their accounts.
The crash reduced public confidence in the exchange, and it was only a matter of time before similar events shook their beliefs in the currency itself, especially given their huge explosions over the last two years.
This moment now coincided with the end of Terra Luna, where thousands of owners were wiped clean and in some cases virtually bankrupt.
As mentioned in the previous article, one proposal came out of Twittersphere and was supported by renowned Ethereum co-founder Vitalik Buterin. While the burden of loss rests on the wealthiest whales, we were able to complete almost all of them.
Buterin liked this idea and set a precedent in existing bank deposit insurance schemes (US or elsewhere in the world), guaranteeing payments to all depositors up to a certain amount. He also mentioned Singapore’s employment law as another example of the protection of the weakest:
Aside from the ideological debate about whether cryptography needs to be regulated, this is a matter of purely personal belief and it is unlikely (at least here) to find a definitive solution, Buterin. You need to consider the meaning of the suggestions like here we support.
And the definition of the cryptocurrency itself.
Investment or deposit?
By calling the deposit insurance scheme, Ethereum co-founders seem to suggest that cryptocurrency holders should be treated the same as bank deposit holders.
But since cryptocurrencies are not fiat currencies almost everywhere, can we enjoy the same protection? What is important is why people spend their fiat (sometimes life-saving) in exchange for cryptocurrencies? Isn’t it an investment?
Tools like the Federal Deposit Insurance Corporation (FDIC) provide insurance to depositors, but this is an important difference because investors have no protection. The most important thing for banks and other financial institutions is to remind clients that every investment is risky and past performance is not an indicator of future returns.
If you buy shares issued by Sea Ltd or Grab, you will lose about 80% of your investment within 6-9 months and no one will return it. You can only expect their value to increase again over time.
In fact, even if you engage in forex and lose the value of your chosen currency, you will be protected from that decline, just as there is no insurance to cover Malaysian people when 1SGD reaches 3.20MYR. not.
So should there be insurance for Luna holders when that price drops to US $ 0.00001?
Bank deposit insurance triggered by Vitalik Buterin does not protect your currency from losing its actual value. It only guarantees a minimum payment of your holdings in the event of a banking institution (in the Fractional-Reserve Bank system where banks need to hold only a small portion of their deposits in cash).
In Singapore, the deposit insurance system protects up to S $ 75,000 you put in your bank. If you put in up to S $ 75,000, you’ll get it back in case the bank goes bankrupt. that’s all. Whether 1SGD is worth 1MYR by then is a completely different story.
Therefore, by definition, the same solution could not be applied to the Terra Luna situation, as the holder had not lost the currency. They can still exchange them and exchange them. Nothing disappeared from their wallet. They are very, very little worth.
What is Buterin? de facto The proposal is insurance from investment losses, which is not something that any government on the planet can (or can) do.
An insurance scheme similar to the FDIC can be applied to the case of Mt. Gox where people lost their actual Bitcoin (regardless of the value of the US dollar at the time), but to Terralna, which is only the value of the collapsed currency. can not.
But for it to work, there will have to be a fund that all participants will be forced to pay. Do you have a taker?
Reinventing the wheel
Whether you support cryptographic regulations or not, it’s very clear that some form of regulation will come anyway, so I think it’s important to highlight and discuss these issues.
And the kneeling reaction from the community (even if it’s well-meaning and sympathetic) is an embarrassing indication of amateurism, including some of its most sensitive members, and which traditional banking government regulations are. It seems to be an unintended reproduction of what went on (that is, in response to subsequent crises, crashes, and bankruptcies).
The problem is that when those who dominate cryptocurrencies and blockchains, which already support billions of dollars worth of digital assets, talk about regulation, their mistakes due to lack of experience and understanding are more than Terraruna. It can cause even bigger disasters.
In this case, Ethereum’s founder, Savanto, expressed public support for ideas that would result in far more stringent regulations than traditional finance, and that cast doubt on the basic rules of investment.
A much cooler head must take precedence over the rules for making cryptography better, more secure, and more reliable.
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