Regulators around the world have been busy developing various approaches to cryptocurrency regulation, and some of them ended up trying to ban cryptocurrencies altogether. Such an attitude can hardly be considered efficient enough to manage the identified risks if there are simply no means to do so. The blockchain and digital assets sector continues to evolve, adding more products and services, so it cannot be ignored.
Is the involvement of cryptocurrencies in crime still a problem?
The cryptocurrency industry is nascent, so regulators are confused when it comes to developing standardized compliance practices.
Since digital asset transactions are anonymous or pseudonymous, financial authorities are concerned about the involvement of cryptocurrencies in criminal activities and evasion of sanctions. Add limited legislative frameworks and little experience to the mix. Then, it becomes abundantly clear that lawmakers cannot fully accept the needs and risks of the digital asset industry without close cooperation with crypto companies.
Meanwhile, the volume of illicit activities involving cryptocurrencies has refused as a percentage of total volumes, going from 0.62-0.65% in 2020 to 0.10-0.15% in 2021.
It would be improper to deny or downplay the achievements of the crypto industry in preventing and combating crimes and other crimes related to the use of digital assets.
Self-regulation is essential
World governments and financial authorities are struggling to reach a consensus regarding the regulation of digital assets and blockchain. But the crypto industry itself is taking significant steps in this direction. To establish user trust, crypto companies have been working on relevant solutions. This is in an attempt to make the industry more transparent and trustworthy.
In 2019, the Association of Cryptocurrency Companies of Japan released its recommendations on the regulation of the initial coin offering. He delved into the crypto expansion on local exchanges and the definitions of utility and security tokens, as well as their regulation.
In order to promote higher standards of conduct in the UK, a self-regulatory association called CryptoUK was launched in 2018. The organization works directly with legislators and industry stakeholders. This is to educate them on the digital asset industry and develop a balanced framework for the UK.
Regulation and TRUST
Among such initiatives is also the Travel Rule Universal Solution Technology (TRUST). This is led by the American crypto exchange Coinbase. It was launched with the support of trading platforms Kraken, BitGo, Gemini, backed by the Winklevoss twins, and Fidelity. TRUST takes steps to reduce money laundering by ensuring members comply with the travel rule while protecting user data.
With just five members at first, TRUST has now signed on over 30 companies. These include crypto wallet providers, brokerages, exchanges, and custodians. They are committed to fighting money laundering in cryptocurrency transactions. This clearly shows the industry’s devotion to making this a safer place.
The organization is now active in Canada, and CoinSmart recently joined TRUST to boost its anti-money laundering (AML) efforts. In addition to being active in Canada, the US and Singapore, the organization plans to expand into the European Union.
On the other side of the world, the Korea Blockchain Industry Association submitted a developmental paradigm aimed at improving self-regulation. This follows multiple hacks that affected cryptocurrency users at the time.
That said, Korean cryptocurrency exchanges would allow users to trade cryptocurrencies only after traditional financial institutions confirm their identity. Like the TRUST project, the measures are expected to bring more transparency to cryptocurrency trading and ensure user protection.
Furthermore, the top five cryptocurrency trading platforms in South Korea have just confirmed the creation of a joint advisory body. It consists of market surveillance, transaction support and compliance monitoring departments. The overall goal of the body is to set and improve standards in the industry.
Healthy partnership with financial regulators
The more trading platforms and custodians join such initiatives, the better compliance in the crypto industry will be. The rules require exchanges to share certain personal information about the sender when they request a transaction for a certain amount. This information is sent to another exchange or financial organization, without storing any user data.
Self-regulatory organizations in the crypto industry have the potential to significantly increase measured regulation. They could be overseen by government regulators such as the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
Also, it would allow crypto and blockchain projects to focus more on innovation as a high level of uncertainty would be removed.
Unlike the heavy regulation that comes from government agencies, this approach would involve an ongoing exchange of knowledge and experience. This would ensure that future regulation is developed and introduced that takes into account the needs of businesses in a rapidly evolving sector. Simply put, the cryptocurrency industry would have a say.
About the Author
justin hartzman is the CEO and co-founder of CoinSmart (NEO:SMRT) (FSE:IIR), a leading Canadian publicly traded and regulated cryptocurrency trading platform dedicated to making cryptocurrency accessible to all. Justin has run numerous companies from start-up to his successful exit, including All You Can Eat Internet and WeSellYourSite.
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