Written by: Mu Mu, Plain Language Blockchain
Not long ago, former Binance CEO Zhao Changpeng was released from prison in the United States and returned to Dubai to attend industry events, which broke the outside world's speculation that he would be "pledged" by the United States for a long time. Recently, Zhao Changpeng was also included in the Hurun Rich List as the founder of the world's largest crypto trading platform. While people lamented that he would "get into trouble" as a rich man, looking back at the history of crypto development, many founders and executives of leading crypto companies have been arrested and imprisoned, and some people even listed a long list of "cryptocurrency entrepreneurial risk lists". Some people can't help but ask: Why is the "prison risk" of these cryptocurrency giants so high?
01 Cryptocurrency giants walking on a tightrope
Since the birth of Bitcoin, the encryption industry has gone through more than ten years. During this period, entrepreneurs have been sent to prison, including some "big guys" who were once very popular.
In the list of risks for cryptocurrency startups, there is the famous "Mt. Gox incident" in the long run. In 2014, Mt. Gox, the world's largest Bitcoin trading platform at the time, was hacked and lost hundreds of thousands of Bitcoins. Mark Karpeles, the former CEO of Mentougou, was sentenced for "suspected tampering with financial records" (some people suspected that he embezzled, but no relevant evidence was found, and the theft incident became an unsolved case).
Mark Karpeles, former CEO of Mentougou
Recently, in addition to Zhao Changpeng, there are Do kwon, the founder of Luna, who was the most successful in the last bull market, and SBF, the founder of FTX. One was charged with "securities fraud" and has not been sentenced yet, while the other was sentenced to 25 years in prison and a fine of 11 billion US dollars for "financial fraud."
Arrested Luna founder Do kwon
In comparison, Zhao Changpeng's four-month imprisonment was relatively minor. His crime was "failure to implement an effective anti-laundering plan, violating the U.S. (Bank Secrecy Act)". To be more precise, the company he managed (Binance) did not fulfill its anti-laundering obligations and did not cooperate with the U.S. sanctions policy. Although Binance is not a bank, whether it is unfair or not, it is really helpless to be involved in this matter.
It is said that crypto entrepreneurship is risky, but I didn’t expect it to be so high. It is no exaggeration to say that the entrepreneurship of the bigwigs in the circle is like "walking on a tightrope."
02 Five reasons why the big guys in the circle have a high risk of going to jail, the last point is the key
The charges for the imprisonment of the bigwigs are varied. Before they were imprisoned, they were all "prodigies" with extraordinary talents. If we say that they just have "weak legal awareness", this reason is definitely untenable. By comparing and analyzing the events related to the imprisonment of these bigwigs, it is not difficult to find some commonalities and the underlying logic behind them. Finally, it is concluded that there are at least five reasons why the "risk of imprisonment" of the bigwigs in the circle is high:
1) Unable to resist temptation and aggressive greed
Usually, many leading platforms and projects in the crypto industry have to trust tens of billions of dollars of assets for users. In an era where liquidity is money, people can earn a lot of money even if they do nothing. However, many people cannot resist the temptation and adopt radical strategies driven by human nature, diverting users' assets into high-risk markets, which makes the hole bigger and bigger, and eventually leads to bankruptcy.
2) Innovation and illegality are only separated by a thin wall
Many times, innovation means breaking existing rules. Crypto projects were once regarded as decentralized Internet financial innovations. At this time, the old regulatory measures were definitely not able to keep up and were not in place, and the laws and regulations did not have clear provisions. In most cases, it was up to innovative companies to consciously regulate their behavior, but many times, if they were not careful, they would evolve into "P2P finance" that was difficult to resolve.
Although the supervision of some countries and regions is very inclusive of financial innovations such as encryption, some activities are ultimately major challenges to the existing system. In many cases, there are no clear regulations on what can and cannot be done and where the red lines are. These make innovation and illegality only a thin wall apart, which is also the frustration of all entrepreneurs.
3) The original sin of encryption
To this day, even though crypto assets represented by Bitcoin have long entered the mainstream public eye, there are still quite a number of people who believe that this is a "dark" industry because it can be used for many illegal purposes and facilitates crime. In addition, the sudden wealth of many early crypto asset holders has led to "unequal wealth distribution" in the eyes of some people, and hatred has been filled up.
Due to differences in cognition, people who do not recognize or accept the crypto industry look at it with tinted glasses. These people are widely present in the judicial team. As a result, when the original sins of "crypto" are listed one by one by them, they will continue to launch various legal challenges to crypto entrepreneurs and related projects.
Of course, as crypto assets become more mainstream, more and more people are letting go of their prejudices after further understanding them, but we cannot expect a reversal overnight; it takes time.
4) Global compliance is costly and difficult
Take crypto trading platforms as an example. Since crypto platforms are usually open to global users, global crypto asset financial activities, like other traditional financial institutions, need to comply with different laws and regulations, as well as the long-arm jurisdiction policies of some countries. In addition, they also have to face difficulties created by regulators wearing "tinted glasses" in some regions.
Take Paypal as an example. Traditional multinational financial institutions have to apply for various local licenses, face different regulatory policies, and deal with regulators in different regions every time they deploy related businesses in a country. If a certain link is not done well, they may face local fines of hundreds of millions of dollars. The manpower and material resources invested in this process are difficult to measure.
As early as 2022, Zhao Changpeng stated on social media that Binance's global compliance expenses have exceeded US$1 billion. Obviously, this number is constantly increasing. Coupled with the billions of fines paid during the communication and settlement process with US regulators this year, the overall figure is indeed an astronomical figure.
5) Competition for the “international voice” in the crypto market
Since El Salvador announced that it would “go all in” on Bitcoin, we already know that national players have begun to enter the market. Cryptocurrencies such as Bitcoin not only represent innovations in financial payments, but also represent the future technologies of the next generation of Internet, such as Web3. In terms of the right to speak on innovative technologies, most countries are unwilling to lag behind, even if they understand that there are certain risks involved.
Take the previous case for example. The US’s treatment of FTX and punishment of Binance eventually put their founders in jail, and FTX disappeared from the market. Binance paid billions of dollars to reach a settlement with regulators. At the same time, the mediation plan also requires that the US Treasury Department retain access to Binance accounts and systems for five years.
The purpose of the various regulatory agencies in the United States is not only to maintain the stability of the financial market, but also to crack down on the leading trading platforms, requiring them to comply with the long-arm jurisdiction of the United States and the rules of the game specified by the United States, and also to play a demonstrative role in the crypto industry. Now there are signs that some countries are using blockchain and encrypted assets for international trade to bypass the hegemony of the US dollar. For the United States, encrypted assets such as Bitcoin are still a "sharp sword". If this sword cannot be "destroyed", it can only be controlled in its own hands in some way, or guided to use it for its own benefit, so that it can become the biggest beneficiary.
The United States has dealt with and deeply monitored the operations of platforms such as Binance that have extremely high say in the cryptocurrency market. The Bitcoin spot ETF that had been pending for many years was suddenly approved, and then the Ethereum spot ETF was also approved. Only then did the relevant U.S. capital "feel safe" to flow into the crypto market from these safe paths. Since then, the United States has brought the crypto market under its control and gained a certain degree of "pricing power."
Trump, who just won the 47th US President, mentioned in his speech at the Bitcoin Conference that Bitcoin is not only a technological miracle, but also a miracle of cooperation and human achievement, as you know. The reason why he came to the Bitcoin community to give a speech is because he adheres to the principle of "America First". His vision is to let the United States dominate the future and hope that the United States will become a trend-setting country. He wants to ensure that the United States becomes the crypto capital of the earth and the Bitcoin superpower in the world.
03 Summary
For centralized platforms and project teams, regulation is inevitable, and countries and regions that have properly balanced regulation and innovation will be the biggest beneficiaries of this technology and innovation. With the recent US election dust settled, crypto-friendly President Trump is about to take office, which will also bring a more friendly regulatory environment. I believe that crypto entrepreneurs including Bitcoin bigwigs such as Zhao Changpeng will finally put down their "hanging hearts" and promote the accelerated implementation of encryption and Web3 application innovation in the future.
