Regulatory uncertainty has prevented cryptocurrencies from truly breaking into the mainstream.
But that’s about to change.
Since the middle of 2017 there have been renewed government efforts to regulate the market. These efforts have largely centred on know your customer (KYC) and anti-money laundering (AML) regulations.
KYC and AML are processes of obtaining relevant identifying information. They require that financial institutions conduct thorough background checks and analysis regarding their clients, the origin of the funds or assets they dispose of, and their counterparties. This is to prevent the generation of unauditable transactions.
When it comes to crypto assets, while the same concepts apply, the tools are different. As every transaction is public, the origin of the funds can always be traced back to the mining of a specific coin; however, clustering the data into readable blocks requires in-depth IT and crypto knowledge.
It’s here that companies and individuals alike have to play their part in ensuring they comply with these regulations.
Taking a professional and proactive approach to regulatory requirements will be essential to the crypto asset class going mainstream. This includes using blockchain analysis to enhance KYC and AML procedures.
It’s this culmination of forces that will push crypto firmly into the mainstream. Moreover, it’s the way the world is going.
South Korea, the US, the UK and the EU are adding KYC and AML rules into cryptocurrency regulatory frameworks. In Switzerland, thanks to a proactive stance from regulatory authorities, some family offices and financial service providers have already incorporated these new parameters and rigorous standards to offer innovative financial services to their clients.
Correctly regulated, cryptocurrencies can actually be the safe traceable assets they’ve always promised to be.
While some cryptocurrencies like Dash and Monero still allow for customer anonymity, which obscures the origins of the funds, Bitcoin and most other crypto assets provide safeguards against criminal use.
They are public blockchains where each coin’s history and chain of ownership is permanently and publicly logged. Unlike a banknote, with no such history attached to it, the journey of a coin can be traced back in time, and it can be followed going forward. It’s possible to gather a large amount of data from public blockchains. Had the transactions occurred with traditional money, such information would not be available.
The benefits are clear: having clear KYC/AML regulations and strong compliance services will bridge the new digital asset class with traditional compliance standards and allow more businesses to innovate and prosper.
Mathieu Saint-Cyr is the managing director of the Geneva Management Group’s crypto unit.