With proper rules, crypto could be a crime fighter

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The US government has been making a lot of noise in recent weeks about the need for stricter regulation of crypto to prevent it from being used for money laundering or to finance terrorism.

Last month, President Joe Bidens’ $ 1,000 billion infrastructure bill, which includes provisions on the regulation of cryptocurrencies, was passed by the Senate and is now on its way to Congress. This came after Federal Reserve Chairman Jerome Powell spoke in July about the Fed’s interest in regulating so-called stablecoins, as well as the potential for a central bank digital currency (CBDC). which would compete with cryptocurrencies such as bitcoin and Ethereum.

Therefore, it looks like tougher rules are on the way and the United States will play a key role in shaping these regulations that would govern how people are allowed to transact with digital money at home. the future.

For many enthusiasts, the decentralized nature of cryptos, which unlike fiat currencies is not backed by any government institution or authority, is a big draw. But the cryptocurrency exchanges themselves are all too eager to put more regulation in place.

More like this: Former SEC Agent Says Watch Dogs, Crypto Firms Need Open Dialogue On Oversight

The regulatory welcome mat

Lennix Lai, director of financial markets at OKEx, a Hong Kong-based cryptocurrency exchange, told PYMNTS in an interview that he actually welcomes the US crypto regulation because he says it will likely adopt. a very balanced approach and that others will be encouraged to follow its lead.

It doesn’t have to be too strict, but a bare minimum of regulation, things like Know Your Customer [KYC], Fight against money laundering [AML] rules and verification, is something crypto really needs, he said.

Manager Evans, senior vice president of identity solutions at Trulioo, joined the conversation, who said he also welcomes the regulation of crypto. According to him, the vast majority of companies in the cryptocurrency space, including most exchanges, want to see a more transparent and stable ecosystem develop. He compared the current state of crypto to what happened in the late 2000s in the United States, when FinTech first appeared after the Great Recession.

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I remember all of these traditional banks going out against these FinTechs being unregulated, Evans said. But over the past decade, we’ve seen most of these FinTechs adopt the exact same standards, AML and KYC regulations, and now many are applying for banking licenses themselves or even buying from banks so they can participate in services. more traditional financial instruments. .

This is what was going to see in crypto, the same kind of evolution, he added.

On the other hand, Lai cautioned against overly burdensome or stifling regulation, saying it would restrict innovation in the space. He said there are many large and very large cryptocurrency exchanges based in Hong Kong, such as Binance and its own company, which are lobbying the government for more favorable regulations.

So the experience of what the US is doing is very important, because I think it will become a kind of benchmark for the cryptocurrency regulatory regimes that Hong Kong is likely to follow, Lai said.

Further Reading: Crypto Exchanges Turn To Sanction Filtering And Transaction Monitoring To Eliminate Cybercrime

Privacy coins highlight the transparency of crypto

Cybercriminals and money launderers have a particular interest in so-called privacy coins, such as Dash and Monero, which mask transactions by not recording them in a publicly accessible ledger. Fears that they will be used primarily for illegal transactions recently led to their ban in South Korea.

Lai told PYMNTS that the fact that criminals are turning to privacy coins shows us that cryptocurrency isn’t really the most suitable vehicle for illegal transactions.

The cryptocurrency was supposed to be anonymous, but that’s really not because all transactions are recorded on an immutable public ledger, he said. Villains want to hide their identities, but it’s pretty hard to do if everything is recorded and visible to everyone. If law enforcement comes to us and asks us for information about someone, we will distribute that KYC information to them.

KYC as a deterrent

KYC is actually used to control fraud even with privacy coins, Evans explained, because the exit ramp and access ramps for these tokens typically involve the use of other immutable and transparent cryptocurrencies. To cash out a privacy coin, for example, it is necessary to exchange it for a more transparent crypto such as bitcoin before exchanging it for cash. So as long as the exchanges participate in KYC, there really is no privacy, he argued.

I think successful identity verification and fraud prevention companies create a great deterrent, Evans said. They put individuals through steps that can help prevent fraud. And what it does is it directs traffic to exchanges that don’t have those standards in place, flooding them with fraud and risk. It is therefore incumbent on organizations to ensure that they remain at the forefront of these technologies.

See More: Binance Adds Intermediate Verification To KYC For Added Security

Perhaps the real benefit of cryptocurrency, contrary to what many have assumed, is that it actually makes it easier for governments to fight fraud. Lai told Nesto that law enforcement has become very good at reading on-chain data and working with agencies in other countries to identify fraudulent transactions and close accounts associated with them, for example.

On the other hand, it was a lot harder for law enforcement to do these things 15 or 20 years ago when everything was on paper.

Back then, we didn’t have these sophisticated global capabilities to identify those individuals who participate in terrorist financing and filter their names when trying to access traditional financial services, Evans pointed out.

Now, however, things are different. With the emergence of crypto, there is now access to advanced technologies that can help locate these people, especially when digital transactions are publicly recorded, Evans said.

It boils down to a math problem, separating those legitimate users from the small minority of bad actors, he said. And that’s going to be a constant challenge for companies like OKEx and Trulioo to fight.

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NEW PYMNTS DATA: TODAY’S SELF-SERVICE PURCHASING JOURNEY – SEPTEMBER 2021

By the way: 80% of consumers want to use non-traditional payment options like self-service, but only 35% were able to use them for their most recent purchases. Today’s Self-Service Shopping Journey, a collaboration between PYMNTS and Toshiba, analyzes over 2,500 responses to find out how merchants can address uptime and perception issues to meet the demand for free kiosks -service.

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