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The ability to avoid government oversight was a major reason for the popularity of cryptocurrencies like Bitcoin, when compared to conventional financial systems. This could be all set to change soon.
New rules by the G20’s Financial Task Force on Money Laundering (FATF), an intergovernmental body, aimed at the development and promotion of cryptocurrencies at the national and international levels, will affect the pseudonymity of users in an effort to combat money laundering and terrorist funding.
How Does This Affect Cryptocurrency?
From June 21, the FATF, whose policies are followed by around 200 countries, will issue a note, which will specify how the participating nations are expected to oversee digital assets. These rules apply to cryptocurrency exchanges and custodians of crypto hedge funds, as relayed by the FATF spokeswoman Alexandra Wijmenga Daniel. Allegedly, the new policy would require crypto businesses to verify the identities of customers who send or receive more than $1,000 in digital assets.
While the effect largely depends on how nations interpret these regulations, there is no doubt that it could constitute as a huge threat to the very standing of cryptocurrency. The crypto researcher Eric Turner, director of research at Messari Inc., said:
“Their recommendation could have a much larger impact than the SEC or any other regulator has had to date.”
What Effect Does it Have on Crypto Businesses?
While the guidelines, which affect crypto companies ranging from exchanges like Coinbase and Kraken to asset manager such as Fidelity Investments, sound quite simple and direct, it is not as easy to follow, maintains John Roth, the chief compliance and ethics office at Bittrex, a Seattle based exchange that trades in about $58 million daily. The addresses on digital ledgers of crypto wallets are anonymous, which makes it impossible for crypto exchanges to know the actual recipient of funds.
“It’s either going to require a complete and fundamental restructuring of blockchain technology, or it’s going to require a global parallel system to be sort of constructed among the 200 or so exchanges in the world. You can imagine the difficulties in trying to build something like that.”
This beats the whole purpose of a blockchain, which places the utmost importance on privacy and decentralization, although a few U.S. crypto exchanges are trying to set such a system up. Mary Beth Buchanan, general counsel at Kraken, stated that a new technology would be required, without which this would be an attempt to enforce 20th century regulations on a 21st century technology.
While this goes beyond the regular Know Your Customer (KYC), it is also highly harmful to the crypto industry, as pointed out by Chainalysis. However, a number of nations, including the G20 group, have confirmed that they would align with the requirements of the standards.
The G20 nations (which met at Fukoka, Japan, over the weekend) were quick to say that they recognize the potential of the crypto assets, and find them to be low risk, stating:
“Technological innovations, including those underlying crypto-assets, can deliver significant benefits to the financial system and the broader economy.
While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism (CFT).”
What Could Happen to the Crypto Industry?
The G20 has been seeking possible additional measures, and has requested Financial Stability Board, and other standard bodies, to measure risks and the like. Hedge funds and other investment firms might face delays and increased costs for transactions. This could end up adversely affecting small and medium businesses who have no technology to comply, and many business insiders have compared this to the BitLicense of 2015.