Every year, we move closer to Satoshi Nakomoto’s whitepaper. Crypto becomes more popular and more mainstream, breaking down more barriers. After a decade in which almost every year could claim the same, 2021 was the year that crypto took off, from nonfungible tokens to the Metaverse.
Despite all the excitement and enthusiasm, there are still many fundamental problems that need to be resolved before crypto can truly become the “coin of choice” around the world. This is also the backbone for the next industrial revolution. Anti-Money Laundering, Know Your Customer (KYC), and Combating the Financing of Terrorism protections are the most important. These protect crypto as a stable and responsible payment option without excessive regulation.
These are the issues we are seeing with countries that are most excited about adopting crypto. El Salvador is known for making Bitcoin (BTC), legal tender, and building a Bitcoin-funded city under a volcano. However, there have been issues with AML/KY/CFT. Identity thieves stole the Chivo Bitcoin Wallet that El Salvador used to give its citizens a “Bitcoin stimulant.”
It’s not limited to public entities. In a world dominated by high-profile figures, KYC/AML has become a new priority due to the NFT boom of 2021. OpenSea does not have any KYC gathering or AML/CFT screening, so it is vulnerable to being compromised.
The industry must immediately take proactive steps to self-police, self-regulate, and prevent fraud and crime from destroying crypto. They won’t be able to do it if they don’t.
Related: DeFi: What, who, and how can we regulate in a code-governed, borderless world?
NFT platforms are beginning to incorporate AML, KYC, and CFT. However, this standard is not uniform. Old guard auctioneers such as Christie’s or Sotheby’s are reluctant to list these standards or provide any details. OpenSea, the most important driver of NFT’s boom, has so far refused to integrate any type of AML/KYC technology into its platform.
NFTs will continue to grow in popularity, much like popular computer operating system, which will lead to more identity thieves and hackers. Mainstream media outlets proclaim loudly that the NFT scammers have arrived. If 2021 was the year that NFTs reached the highest use case for crypto, then 2022 is when hackers and scammers will attempt to exploit this popularity.
The NFT platforms themselves are reluctant to solve this problem and it is up other technology platforms to take up the slack. These platforms can assist NFT platforms in developing tighter protocols, more detailed AML/KYC requirements, and before governments adopt backward and draconian regulations. Developing “Compliance-as-a-Service” as an internal industry solution will not only prevent fraud but drive even greater enthusiasm and engagement by individuals, financial entities and governments that still see crypto as the irresponsible corner of the financial universe.
Companies should make up the growing sector of compliance-as-a-service, but coping with the growing threat of NFT and blockchain scammers won’t be enough, especially when whole countries are looking to blockchain as national solutions.
Clear AML/KYC standards are essential for true mainstream viability of crypto
Although some within the crypto community would prefer not to encourage or even recognize regulation of any type, that approach and philosophy is neither realistic nor reasonable. The difficulties with El Salvador’s Chivo crypto wallet showed how quickly security and identity problems can impede even the most well-intentioned crypto rollouts. As part of expanding crypto operations, nations continue to look for the best KYC practices. Sri Lanka has completed a KYC proof of concept. Dubai has had its KYC done by HSBC.
In the meantime, the Financial Crimes Enforcement Network, (FinCEN), issued this summer its first AML/CFT priorities in the United States. These priorities include fraud, corruption, cybercrime and terrorist support.
Although different countries are at different stages in the AML/KYC/CFT process there are some guidelines that are being developed. There are 195 countries that regulate crypto. Despite years of regulations, guidelines and penalties, the industry now has enough information to tailor AML/KYC/CFT solutions across jurisdictions. This is another reason why the industry needs to be proactive and develop a standard that is easily understood, internationally recognized, and easy to implement in as many jurisdictions possible.
Related: U.S. updates crypto AML/CFT laws
The industry can’t allow blockchain to be engulfed by the same “Wild West” traps that characterize the internet. The internet’s popularity is undeniable, but it has also meant that privacy and healthy communication have been compromised. This means that we need to create a new identity model based on blockchain’s trustless system. However, it must also be flexible enough for the reasonable standards of AML and KYC.
This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Sekuritance’s CEO is Jonathan Camilleri Bowman. Sekuritance is a multi-dimensional RegTech ecosystem that provides compliance, regulatory transaction monitoring, and identity management to individuals as well as businesses.