Crypto is going to resemble your Bank soon

The biggest selling point of cryptocurrencies beyond its efficiency, fixed supply, and requirement of no banks is its anonymity or pseudo-anonymity, but as things are progressing, there are proposals to put an end to it. Is this even possible? The first that comes to someone’s mind when hearing about it. It might be easy for someone especially regulators and lawmakers to fantasize about bringing such a change, the challenge of actually implementing this is nearly impossible. But recently, an intergovernmental agency, the Financial Action Task Force (FATF), proposed governments to set rules that would exactly result in this.

FATF and crypto

Last month, the FATF proposed a set of new standards. There are 11 in total that deals with all kinds of issues related to cryptocurrencies, ranging from international cooperation to licensing regulating virtual asset service providers (VASP), etc. The FATF is an inter-governmental body consisting of 37 members founded in 1987 and headquartered in Paris. According to its website, the goal of the organization is to ”set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system”. In 2018 October, FATF announced that its international standards for illicit finance regulations now apply to virtual assets. The update meant that countries will need to set requirements for businesses trading or facilitating the exchange of virtual assets to follow FATF rules pertaining to anti-money laundering and combating the financing of terrorism (AML/CFT). The announcement also contained a section which pointed out that more standards will come in 2019.

Curbing illegal activities

Of all the proposed rules one, in particular, has drawn a lot of attention and criticism. It is about how VASP should handle transactions. The VASP, like cryptocurrency exchanges, has already been a target of governmental agencies throughout the world. This is due to the realization that the blockchain networks on which cryptocurrencies run are impossible to control. This problem has resulted in exchanges bearing most of the burden of AML/CFT rules. The new set of rules proposes that the VSAP’s not only verify their customers, which is how they operate nowadays but they verify recipient account effectively making crypto transactions similar to wire transfers where the bank verify both the sender and receiver. By knowing the sender and receiver, the aim is to prevent anonymous transactions, thus reducing the illicit activities, but people have already started moving away from exchanges. Adoption of decentralized exchanges where there is no need to verify anybody’s identity has been on the rise putting forward the question of how effective will these new rules be.

As explained before the expectation of the proposal is to put an end to anonymous transaction i.e., to bring all the trades at least under VASPs to the government overwatch and in the long run curb illicit activity. But even someone with basic knowledge of how crypto works quickly point out that this new measure will not yield the intended results. Yet how did these measure came to be proposed is a part of a bigger problem, the lack of basic understanding of how crypto works and how it will respond to such actions. This incident further points to the emphasis needed to put in educating the people about this new technology especially lawmakers and regulators.

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