Customer Protection landscape

Don't just degen into it, understand.

When it comes to the customer protection framework applied within the cryptocurrency industry, there is no golden rule. Being a fast-paced space, but there were several measures that have been implemented to protect consumers so far, but none of them became a standard by itself. Dealing with tokenised financial vehicles, digital assets providers and cryptocurrency exchanges operators tried to import anti-fraud protection schemes such as know-your-customer (KYC) and anti-money laundering (AML) protocols from the traditional banking system. Being a distributed, decentralised, permissionless and anonymous environment, implementation of these good financial practices failed to fully protect good-will users forcing them to take ownership of their funds and assets. One of the most important innovations produced by this industry so far is the use of secure wallets, which are designed to protect users' private keys and keep their assets safe. While some of them successfully managed to secure funds and keys from hacks and exploits, the problem of secure transfer and exchange of funds between users still lies in the due due diligence conducted by the end users. Additionally to secure storing of keys in cold wallets, smart contracts were developed to allow a trust-less exchange between parties without the need of an intermediary. These contracts can be used to ensure that transactions are conducted in a transparent and fair manner, and can also be used to automatically enforce the terms of the agreement. Being executed exclusively in a decentralised manner, smart contracts started to fill the lack of trust between parties (e.g. escrow smart contracts), unfortunately notoriously failing to become the de-facto standard for trust-less interaction because of vulnerabilities introduced in the underlying code by their authors.

Furthermore, owners of centralised entities tried to leverage the transparent nature of blockchain transactions by offering 24/7 customer support services in order to protect and even recover their customers' assets, but due to the highly anonymous characteristic of this technology, also failed to fulfill their promises. Even more, when talking about transparency imposed by the blockchain technology, failed centralised entities such as many incumbent centralised exchanges proved that the they can escape avoid being audited by their users.