Why Trusting Third Parties Like OkCoin, Huobi Dangerous For Bitcoin
OkCoin and Huobi announced an immediate suspension of withdrawals for one month after receiving a directive from the PBoC to improve on their AML systems.
OkCoin and Huobi announced an immediate suspension of withdrawals for one month after receiving a Directive from the PBoC to improve on their AML systems. This singular act caused Bitcoin price to plunge nine percent overnight, declining from $1,060 to $959 across major global Bitcoin exchanges.
OkCoin and Huobi may have kept their customers in the dark probably to prevent massive withdrawals by customers out of panic, thereby making it difficult for the company to bounce back after the interval.
“This is like when a stock exchange halts trading to avoid an irrecoverable collapse,” says Michael Vogel, CEO of Netcoins.
AML or consumer protection?
This development has left a bitter taste in the mouth of users of their platform. However, a more important aspect that this brings to the forefront once again is where to draw the line between AML and customer protection.
Simon Dixon, CEO BnkToTheFuture.com tells Cointelegraph that many times regulators choose anti-money laundering at the expense of consumer protection and KYC is that exact choice in action.
Dixon says that in order to prevent money laundering, regulators require companies to store confidential documents for customers, putting the customer at risk of identity theft and exposing them to a hacker risk, which is the opposite of consumer protection.
“Regulators often choose anti-money laundering over consumer protection and this is an example,” says Dixon. “Customers cannot access their funds because regulators have chosen anti-money laundering over consumer protection. If we were just thinking of consumer protection, of course, it is a bad idea to prevent all customer withdrawals but regulators are not choosing customers in this case.”
Dixon describes this development as another bump in the road in the story of Bitcoin but nothing that stops its utility as a global store of value with no counterparty risk unless you choose to leave it at an exchange.
Bitcoin is not stocks
Vogel expresses surprise as to how these companies were able to keep this suspension under wraps “it would be interesting to see how many of their own employees made withdrawals prior to the announcement,” he says.
Having likened the situation as to when a stock exchange halts trading to avoid an irrecoverable collapse, Vogel notes that the entity here is Bitcoin and not stocks and the spirit of Bitcoin is that it shouldn't be controllable by a third party in this way.
Vogel also explains that almost every negative incident related to Bitcoin has to do with trusting third parties, most of the time it's an exchange, the favorite go-to incident being Mt Gox.
“This is why Bitcoin ATMs and in-person transactions continue to thrive at record levels and in the markets are affected by OkCoin and Huobi. I don't think we'll see a decrease in trade volume, it'll just move to the ATM and in-person markets. I remain bullish on Bitcoin price.”