AML and KYC: A catalyst for mainstream crypto adoption

by Abiodun Oladokun
7 ways to make with crypto

One of the quickest ways to ensure crypto’s mainstream adoption is by working with the regulators, which includes implementing effective and investor-centric KYC and AML tools.

AML and KYC: A catalyst for mainstream crypto adoption

For Satoshi Nakamoto, the creator of Bitcoin (BTC), the motivation to create a new payment ecosystem from scratch in 2009 stemmed from the economic chaos caused by the banking sector’s over-exuberant and risky lending practices mixed accompanied by the bursting of the housing bubbles in many countries at the time. 

“And who do you think picked up the pieces after the fallout? The taxpayer, of course,” said Durgham Mushtaha, business development manager of blockchain analytics firm Coinfirm, in an exclusive interview with Cointelegraph.

Satoshi recognized the need for a new monetary system based on equity and fairness — a system that gives back power into the hands of the people. A trustless system with anonymous participants, transacting peer-to-peer and without the need of a central entity.

AML and KYC: A catalyst for mainstream crypto adoption

Snippet from the Bitcoin whitepaper. Source: bitcoin.org

However, a subsequent market downturn — fueled by the initial coin offering bubble bursting — made the crypto industry realize the need to build credibility, authority and trust by proactively working with regulators and legislators. Enter Anti-Money Laundering (AML) and Know Your Customers (KYC) procedures.

Mushtaha started the discussion by highlighting how, unlike fiat currency, transactions in coins and tokens built on blockchain technology are far easier to trace using on-chain analytics and AML tools. Furthermore, introducing KYC procedures to identify and legitimize users across major crypto exchanges resulted in a far more robust financial system that became more impervious to money laundering and other illicit activity.

As a result, it effectively bolstered the sector’s image and enticed more people to trust their hard-earned money in the market. “I see the next bull market becoming a watershed moment, where the masses dive into crypto as fears dissipate and the sector grows exponentially,” he said.

Impact of KYC and AML on the evolution of finance

The early discussions and implementation of global AML and KYC legislation date back five decades, marked by the establishment of the Bank Secrecy Act (BSA) in 1970 and the global Financial Action Task Force (FATF) in 1989. “The risk scenario indicators developed in traditional finance over the past 50 years have been adopted into crypto and niche sectors of the industry, including decentralized finance,” added Mushtaha:

With present-day regulatory scrutiny ensuring crypto exchanges are KYC compliant, bad actors find it difficult to off-ramp crypto assets into fiat or spend them in open markets. Speaking about the various methods most commonly used to transfer illicit funds, Mushtaha stated:

Mushtaha believes that crypto entrepreneurs are in a unique position to help write the next chapter of the global financial system, and they should understand that AML compliance isn’t an impediment to their success — but a catalyst. “Most retail investors want to navigate this space safely, managing their risks while transacting,” he recommended. “And giving these investors peace of mind should be a VASP’s priority.” 

Working toward a regulatory future

KYC and AML are necessary elements of today’s macro economy and are important components of the crypto space. Mushtaha disagrees with the belief that regulations erode anonymity. 

“Regulations will drive mass adoption, but it’s incumbent on the players in this space to proactively put forward the framework for regulation that encourages innovation while disincentivizing illicit activity. There is a need to strike a balance where one can monitor money laundering while maintaining a user’s privacy. These are not mutually exclusive goals; you can have both.” 

And, to investors, Mushtaha advised the age-old adage, “do your own research.”

7 ways to make money in crypto

You may also like

Leave a Comment

The latest news about crypto industry at Coingraph. Most recent news about bitcoin, altcoin, blockchain, mining, cryptocurrency prices and more.

 

Email: [email protected]

© 2022 Coingraph.org – All rights reserved.