The world of cryptocurrency is rapidly changing, and the underlying technology has evolved to meet the demands of an evolving market. The proliferation of blockchain-powered games presents a possible new use case for crypto as well as hints at what’s in store with future applications.
Crypto must tackle compliance before regulators do. The “cbdc crypto” is a term that has been used to describe cryptocurrencies that are compliant with regulations. This allows for the creation of cryptocurrencies that can be traded on regulated exchanges, and also offers protection against government interference.
Each year that passes since Satoshi Nakomoto’s whitepaper, cryptocurrency grows in popularity, breaking more boundaries — not only in terms of passion, but also in terms of public acceptability. 2021 was the year of crypto, from nonfungible tokens (NFTs) to the Metaverse, despite a decade in which almost every other year could make the same claim.
Despite this high level of enthusiasm and excitement, we must not lose sight of the reality that basic challenges must be addressed before crypto becomes the dominant “currency of the realm” throughout the world, as well as the backbone of the next industrial revolution. Anti-Money Laundering (AML), Know Your Customer (KYC), and Combating the Financing of Terrorism (CFT) safeguards are among the most important of these concerns, ensuring that crypto remains a responsible and reliable payment alternative free of overregulation.
We’re already seeing challenges like these with the countries that are most excited about crypto adoption, whether via CBDCs or other ways. El Salvador has made headlines for making Bitcoin (BTC) legal tender and building a Bitcoin-funded, zero-tax city beneath a volcano, but the country has had its share of AML/KYC/CFT issues, such as when identity thieves hacked into the Chivo Bitcoin Wallet, the mechanism by which El Salvador provided its citizens with a “Bitcoin stimulus.”
It’s not just government agencies. In a field driven by flashy metrics, the NFT growth in 2021 has generated a whole new requirement and focus on KYC/AML. Because OpenSea has no KYC or AML/CFT screening in place, it leaves itself subject to being hacked.
To prevent crime and fraud from suffocating crypto in its infancy, or at the very least in elementary school, the sector must take urgent aggressive actions to self-police and self-regulate. If they don’t, the duty will be handed over to the same inept government bureaucrats that gave you the cryptocurrency provisions in the US infrastructure bill.
DeFi: Who, what, and how to regulate in a code-governed, borderless world?
Compliance-as-a-Service is becoming more popular.
Although NFT platforms are beginning to incorporate AML, KYC, and CFT, the standard is far from uniform. Auctioneers from the “old guard,” such as Christie’s and Sotheby’s, refuse to enumerate or specify such guidelines in any detail. OpenSea, perhaps the most important generator of the NFT boom, has so far refrained from incorporating any kind of AML/KYC onto its platform.
As the popularity of NFTs grows, so will the popularity of major computer operating systems, attracting more hackers and identity thieves. The “NFT fraudsters are already here,” according to mainstream news sites. If 2021 was the year when NFTs became the greatest use case for crypto we’ve seen so far, 2022 will be the year when hackers and fraudsters attempt to completely capitalize on that popularity.
Due to the NFT platforms’ reluctance to solve this issue, other technological platforms will have to take up the slack. Before governments impose archaic and harsh restrictions, these platforms may assist NFT platforms in developing stricter processes and more precise AML and KYC standards. Developing “Compliance-as-a-Service” as an internal industry solution will not only avoid fraud, but will also pique the interest and participation of people, financial institutions, and governments that still see cryptocurrency as a reckless corner of the financial universe.
Companies should contribute to the expanding compliance-as-a-service industry, but dealing with the rising danger of NFT and blockchain fraudsters will be insufficient, particularly when entire nations turn to blockchain for national solutions.
True mainstream viability for crypto requires clear AML/KYC rules.
Of course, some in the crypto community would prefer not to advocate or even recognise any type of regulation, but such approach and attitude are just unrealistic and unreasonable. El Salvador’s Chivo wallet troubles illustrated how identification and security issues may derail even the most well-intentioned crypto rollouts. As part of their increased crypto activities, countries are still looking for the best KYC processes. Sri Lanka has completed a proof-of-concept for KYC. On its KYC, HSBC collaborated with Dubai.
Meanwhile, the Financial Crimes Enforcement Network (FinCEN) in the United States announced its first AML/CFT priorities this summer. Corruption, cybercrime, terrorist support, fraud, international crime, drug and human trafficking, and funding weapons of mass destruction are among the top objectives.
While several countries are at various stages of the AML/KYC/CFT process, certain clear standards are developing. Yes, there may be 195 distinct rules for regulating cryptocurrency with 195 different nations. After many years of guidelines, laws, and fines, the sector now has more than enough parameters to begin customizing AML/KYC/CFT solutions and monitoring across countries. This is just another reason why the industry must take the initiative in producing a comprehensive, simply understandable, and universally recognized standard that can be implemented in as many jurisdictions as feasible.
The United States’ anti-money laundering and counter-terrorist financing legislation have been updated.
What the business cannot afford to do is allow blockchain to succumb to the same “Wild West” dangers that plague the internet. Yes, the internet’s popularity is undeniable, but it has come at the expense of not just privacy, but also the importance of truth and good interpersonal interactions. That requires creating a new identification model based on the blockchain’s trustless system, but one that is flexible enough to fulfill AML, KYC, and CFT regulations.
There is no financial advice or suggestion in this article. Every investing and trading choice has risk, and readers should do their own due diligence before making a decision.
The author’s views, ideas, and opinions are entirely his or her own, and do not necessarily reflect or represent those of Cointelegraph.
Jonathan Camilleri Bowman is the CEO of Sekuritance, a multi-dimensional RegTech ecosystem that provides people and businesses with compliance, regulatory transaction monitoring, and identity management.
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