What is Binance, why did the world’s largest cryptocurrency exchange plead guilty? | Tech News

What is Binance, why did the world’s largest cryptocurrency exchange plead guilty?

Binance, a cryptocurrency exchange, pleaded guilty to US DOJ and agreed to a settlement worth 4.3 billion dollars which also included the proviso that its CEO, Changpeng Zhao, step down.

| Updated on: Nov 22 2023, 14:49 IST
Know how Binance being hit with penalties for breaking US regulations can impact the future of the crypto industry. (REUTERS)
Know how Binance being hit with penalties for breaking US regulations can impact the future of the crypto industry. (REUTERS)

The world's largest cryptocurrency exchange by trade volume, Binance, came under regulatory scrutiny earlier this year when the US Department of Justice (DOJ), along with the Commodity Futures Trading Commission (CFTC) cracked down on the company's lack of regulatory and legal mechanisms to prevent transactions made to fund terrorism, drug deals, and other illegal activities, as per the agencies. On Tuesday, the CEO of the company, Changpeng Zhao, pleaded guilty and agreed on a settlement worth 4.3 billion dollars.

But if you are unfamiliar with the world of crypto and want to know what is Binance, the reasons for it to plead guilty, and how this decision may impact the crypto industry in the future, then here is a quick guide. Let us take a look.

What is Binance?

Binance, a cryptocurrency exchange, was founded in 2017 by Changpeng Zhao. The company was initially based out of China, then moved to Japan, and then to Malta. At present, it does not have any official headquarters. It became extremely popular and contributed to the explosion of cryptocurrency globally with its easy-to-use interface, support for a large number of cryptocurrencies, and low trading fees.

Binance also has its cryptocurrency which is known as Binance Coin. Before the settlement, Binance had a market share of 40 percent for crypto spot trading, claiming the top position in the market, with the second position going to Seychelles-based OKX with 5.44 percent of the market share.

Binance gained fame for building fast and breaking existing systems to reach a wider consumer base, often dipping its toes in unregulated areas, as per the allegations of the DOJ. It also led to its eventual fall.

Why did Binance plead guilty?

As per authorities, Binance broke US anti-money laundering and sanctions laws and failed to report more than 100,000 suspicious transactions with organizations the US described as terrorist groups including Hamas, al Qaeda, and the Islamic State of Iraq and Syria, reported Reuters.

Further, the exchange also never reported transactions with websites devoted to selling child sexual abuse materials and was one of the largest recipients of ransomware proceeds, mentions the report.

How will this impact the future of crypto?

Just like FTX, Binance also had similar issues with regulations and legal mechanisms to correctly identify and report transactions that were being made by bad actors, and for illegal purposes.

Binance admitted as much in a statement given by the company, where it said, “When Binance first launched, it did not have compliance controls adequate for the company that it was quickly becoming, and it should have. Binance grew at an extremely fast pace globally, in a new and evolving industry that was in the early stages of regulation, and Binance made misguided decisions along the way”.

As per a report by CNN, this is a common rhetoric from companies who find themselves in a similar position. The report also featured industry experts who mentioned that the conclusion of this case should mark a more regulatory-focused approach by the US institutions, which should also push crypto companies to create proper mechanisms to identify their user base. KYC is something that is expected to become a norm in the future.

Binance competitor Coinbase's CEO Brian Armstrong also wrote a long post on X, highlighting the necessity to follow the rule of law. He said, “We took a lot of arrows operating here in the U.S. due to the lack of regulatory clarity, and my hope is that today's news serves as a catalyst to finally achieve that. Americans should not have to go to offshore unregulated exchanges to benefit from this technology. This industry should be built right here in America, in a compliant way, under U.S. law”.

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First Published Date: 22 Nov, 14:48 IST