Know-your-customer requirements could stifle the wild innovation of the blockchain space if they are not reigned in a bit and at least, applied in a more standardized fashion. CoinDesk’s article today on this makes this particular idea clear through the example of what would happen if every transaction required some sort of KYC.
In short, crypto platforms would become inefficient to the point that doing business in the space would likely become unprofitable for any party. Sending anything frequently to a government agency or really, any agency takes time and in the case of crypto networks, takes away from the idea that the power to own and send money is in the hands of the customer.
It’s an easy argument to make, yet things are not that simple. To truly reach the point at which the general public, including governing bodies, feel completely comfortable with the blockchain and crypto, teams may have to work within existing legal frameworks for the foreseeable future.
Even with the SEC’s recent announcement of its’ token offering framework, several holes seem to exist in terms of how completely new laws could be developed and implemented effectively to deal with the blockchain industry. For starters, as CoinDesk has mentioned in the past, how do we define “active participants?” In other words, which parties help regulators to determine whether or not a crypto offering represents a security? Do ICO promoters count?
What seems likely for now is that most governments will simply use their existing security frameworks to determine how to regulate cryptocurrencies, unless they are Malta or one of the handful that has fully embraced the idea of having a legal framework that is dedicated to crypto.
One of the key problems with this is that with existing regulations come existing and often heavily strict KYC and AML regulations. However, it does not have to be this way. If governments can be convinced that KYC and AML can be effective, while still protecting consumer privacy, then perhaps things can change.
Perhaps the key hindrance to this is that reportedly, a heavy handed approach to KYC and AML has been extending beyond the crypto space to the financial industry in general. It seems to just be how things are, for now, which is accentuated by cases like the one mentioned today by CoinDesk that involves the Financial Action Task Force.
If you don’t already know, the Financial Action Task Force is a group that involves members from several global governments, which is designed to work exclusively on tackling financially-related crime. Since its’ members are from more than 10 of the world’s most powerful countries, its’ opinion on the subject matters for the world at-large.
According to CoinDesk, in a recent document that the FATF drew up regarding the transfer of digital assets from one customer to another, the organization recommended KYC for basically every asset transfer. Even if this were done in a minimalistic way, it would still reasonably mean having yourself identified every time you do a transfer of any kind.
Since Chainanalysis, which specializes in innovative KYC solutions for crypto, already spoke out against the issue and was reportedly heard by the FATF, perhaps this recommendation will never take effect. Because the FATF wants to prevent anonymous illegal transactions from occurring and Chainanalysis wants to support crypto customers’ rights to privacy, a longer debate is probably ahead.
If anything should be taken from this, it’s that we haven’t found the answer to KYC and AML that satisfies both crypto users and governments just yet. Furthermore, it’s possible that an entirely new solution will have to be developed before any of this is solved, though it’s currently not clear what that might be. In the end, a good starting point could be the remember that crypto isn’t money as we know it.
By: BGN Editorial Staff