Crypto Is Next Step in Currency Evolution but Must Adapt to Succeed

Crypto Is Next Step in Currency Evolution but Must Adapt to Succeed

What are the main reasons why mainstream cryptocurrency adoption has not yet begun? And why does it remain so complicated?

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As the human race evolves, our means of exchanging value also continuously develops. From the barter system that dates back to 6,000 B.C. to the present-day use of fiat currency, the human race has been on a nonstop journey toward creating more efficient exchange methods. Factors such as convenience, availability, stability and sustainability have played crucial roles in the evolution of exchange methods.

What is fiat currency?

Fiat currency is essentially paper money backed solely by the government’s word and central bank regulations. It became the preferred method of exchange globally at the expense of other methods such as commodity-based currencies and barter. This was owing to its convenience, the relative stability of value and also because it is under government control. Fiat currencies gained prominence in the 20th century partly because governments sought to insulate their economies from the worst effects of the natural fluctuations of the business cycle.

A fiat currency is a legal tender that has value based on the issuing government rather than physical assets. Hence, its value is only as good as the issuing government. Corrupt politicians and irresponsible governments have been culpable of printing excess money to cover up for their lapses. This results in an endless cycle of inflation or, worse yet, a recession. In 2019, Zimbabwe struggled with hyperinflation of more than 300% after a long period of political unrest.


As the world became increasingly digital moving into the 21st century, the need for a secured digitized means of payment became inevitable. Banks and other financial institutions continued to adopt various digital payment methods. The blockchain breakthrough finally arrived in 2008 when Satoshi Nakamoto published a white paper on what would become Bitcoin (BTC) — the first and most popular modern cryptocurrency.

As a decentralized means of exchange, the elimination of third parties and central banks is undoubtedly the most significant advantage of cryptocurrency. Unlike fiat currencies, blockchain technology is a public ledger and is tightly regulated by a process called mining. This ensures that all money in circulation is accounted for, promoting transparency and accountability in the technology.

Replacing fiat currencies with cryptocurrency

Cryptocurrency edges out fiat currency in processing fast, reliable, efficient means of exchange, especially in a digitized world. However, the technology has to overcome some significant hurdles if it is ever to become more popular than traditional fiat currencies. Here are a few reasons why the mainstream adoption of cryptocurrencies is complicated:


Governments and regulatory institutions are among the many barriers that cryptocurrency faces in its bid to emerge as a globally accepted means of exchange. Taxation on distributed ledger technology is complicated because it is independent of governments and traditional banking systems. Besides, politicians and governments can shape economies when they control money circulation. Consequently, by creating hostile policies and dissuading the use of cryptocurrencies, governments can keep a lid on their use and ultimately ensure the flow of fiat currency.

Public perception

Recently, Twitter suffered what could quite possibly be the worst hack since its inception. Celebrities, billionaires and multiple cryptocurrency exchanges were targeted and hacked. The hackers composed different messages asking people to send Bitcoin to a wallet address in order to receive double the amount back, and around $120,000 worth of BTC was lost to the scam.

While the involvement of Bitcoin in the scam doesn’t tell even a quarter of the story, its use in fraud, scams and some dark web activity has been a deterrent to blockchain’s popularity.

Bitcoin mining and energy consumed

As previously mentioned, Bitcoin transactions are verified by a unique process called mining. Transactions on the distributed ledger are confirmed and stored as “blocks of information” by Bitcoin miners. However, mining is a complex and energy-consuming process that requires a high amount of power and energy generation. The University of Cambridge estimates that Bitcoin consumes 0.21% of the electricity the world produces, an amount close to the total electrical consumption of countries such as Romania, Bangladesh and Israel.

As many mining farms all over the world seek to expand their operations to prepare for a future with cryptocurrencies, the big question remains — how sustainable is this energy-consuming process in the long term?

Bitcoin scalability 

Originally designed to process seven transactions per second, blockchain technology now faces a huge scalability problem. While the intention of Bitcoin’s developers was solely to prevent hackers from manipulating the technology, the transaction capacity simply can’t accommodate the enormous use of the blockchain.

This would be complicated even further by an increase in industries and investors seeking to adopt the technology. While cryptocurrency experts have debated over the years whether to increase block size or use an exponential scaling-off approach, it remains to be seen whether and how the scalability problem can be put to bed.

While the blockchain technology market is expected to be worth over $39 billion by 2025, its mainstream adoption and eventual replacement of fiat currencies may still be a massive reach. Cryptocurrencies certainly have a long way to go, and investors can sit back and watch how the technology unfolds shortly.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Joshua Esan is a freelance writer and editor passionate about blockchain technology and the health industry. He is a fourth-year medical student and has worked with various companies and blogs since the blockchain revolution began.

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What are the main reasons why mainstream cryptocurrency adoption has not yet begun? And why does it remain so complicated?

Crypto Conferences Finding Ways to Adapt Amid Coronavirus Pandemic

Crypto Conferences Finding Ways to Adapt Amid Coronavirus Pandemic

As countless crypto events are being delayed or canceled due to the coronavirus outbreak, many organizers have found creative ways to make the event happen

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The number of coronavirus cases worldwide is rapidly getting close to 400,000, with many industries and businesses affected around the world. The crypto market has been no exception. Bitcoin’s (BTC) price initially reacted with a 50% drop; blockchain companies began to suggest that their employees working remotely; and crypto conferences have been either canceled or postponed.

While some conferences report poor attendance and mass dropouts from panelists, others have found success in a virtual format. Crypto conference organizers and speakers shared with Cointelegraph the latest insights on what is happening right now within the blockchain events industry.

How did it all begin?

It all started back in February when organizers of major crypto conferences moved to cancel events in Asia in an attempt to combat the spread of the coronavirus. Among them were Hong Kong Blockchain Week 2020, Japan’s TEAMZ Blockchain Summit and Token2049 that were rescheduled for September and October.

Two other major events — the Binance Blockchain Week Vietnam and TRON’s native summit — were canceled with new dates yet to be announced. Both organizers have already offered the participants a full refund or free VIP tickets.

Until recently, participants of canceled events in Asia could attend crypto conferences in neighboring countries — now it’s almost impossible. Erhan Korhaliller, the organizer of Istanbul Blockchain Week, for instance, delayed the conference last week, although he previously proposed attending it as an alternative to canceled Asian conferences, citing low coronavirus infection numbers in Turkey.

Many participants supported the organizer’s decision. Among them is Emre Tekisalp, the director of business development of O(1) Labs, the team behind Coda Protocol, who was invited to speak at the Istanbul Blockchain Week. He told Cointelegraph:

“Most conferences have wisely placed the safety and health of participants above their own economic concerns.”

In the United States, which has the third-highest number of people infected by COVID-19, organizers of crypto conferences have also had to change their plans. In particular, Bitcoin 2020, which was supposed to be held in San Francisco in March, has been rescheduled for the third quarter of 2020, and the DC Blockchain Summit has been canceled altogether, with new dates yet to be announced.

Australia is also on the list. Adrian Przelozny, the CEO of crypto exchange Independent Reserve, shared with Cointelegraph that the APAC Blockchain Conference, which was initially scheduled for April 28–30, has been rescheduled for later dates.

In general, the community reacted to the cancellation of conferences with understanding, albeit actively, as the users’ comments on the official Twitter page of the British Crypto Festival suggest.

Overall, most blockchain- and cryptocurrency-related activities have been postponed to the second half of the year due to the current precarious situation around the world. Antonio Milio, the CEO and co-founder of Bitwings, a blockchain-based solution of the leading Spanish mobile operator Wings Mobile, told Cointelegraph that most crypto conferences have been postponed until the fall:

“Over the past two weeks, about 10 conferences that I planned to visit have been canceled. Some of them were postponed to September–October, but there is no idea yet when the panic due to coronavirus will disappear.”

First infected

On March 15, Cointelegraph reported on the first coronavirus cases among the participants of the Ethereum Community Conference, which took place in Paris from March 3 to 5.

To date 18 people have been diagnosed with the disease, including Afri Schoedon, the former lead manager of Parity; Jacques Dafflon, author of the ERC-777 token standard; Marco Correia from Gnosis; and Yong Zhen Yu, the co-founder of Torus, a decentralized authentication service. The latter wrote in a Twitter post that he also attended the ETHLondonUK conference, which, in turn, can potentially mean more attendees could be infected.

All the participants of this event — over 600 people, including Vitalik Buterin, Vlad Zamfir and Joe Lubin — were also asked to take a coronavirus test. 

Conferences move online

Against the background of disturbing reports, the organizers of one of the largest events in the crypto industry — Consensus 2020 — have decided to make the event virtual instead of canceling it. The online conference will be held in May, allowing attendees from all over the world to join for free. Additionally, the organizers have promised to give a refund to those who don’t want to participate online.

Many participants have chosen to keep their tickets, though. For example, Eric Pitt, director of marketing for DigitalMint, a Bitcoin point-of-sale provider, told Cointelegraph that his team will take part in the virtual conference:

“We’re delighted to see that the conference will be adapted to a completely virtual format, rather than canceling the event. During a time when all industry gatherings are canceled, being able to participate in Consensus means a lot.”

Another Consensus speaker, Will Reeves, has also confirmed his online participation to Cointelegraph:

“I’m going to be a speaker at Consensus 2020, which has been re-formatted as a virtual event. In my view, it’s better for conferences to go virtual than to cancel or delay indefinitely.” 

After the EthCC 3 conference, some participants were diagnosed with COVID-19, while another event in Paris, Blockchain Week Summit, was postponed to December. Christophe Ozcan, one of the organizers of the Paris Blockchain Summit, which is scheduled for July 10, told Cointelegraph that his team is now considering switching to a virtual conference as well:

“We have already scheduled the 3rd Paris Blockchain Summit on 10th July of 2020. At the moment, we are waiting to see how the coronavirus pandemic virus will be cured around the world and how the current situation is evolving. We are analyzing few other possibilities like making a virtual summit in case that the current situation still not evolve.”

However, demand for such a format remains low, according to Ozcan, since the expectations are unknown for sponsors and attendees, adding: “It is slowly gaining momentum. If the pandemic is not contained early enough, we will likely see an increased interest in virtual crypto conferences.”

Przelozny told Cointelegraph that despite many people liking the virtual format, the main attraction of attending conferences is to meet the delegates and speakers, which would no longer be an option: “It’s not often that you have a possibility to meet so many of APAC’s leaders in blockchain under the one roof.”

Still, there are opposite points of view regarding the demand for the online format. Pradeep Atmaram, public relations officer at Persistence, the enterprise hub of Cosmos, believes that the demand for virtual events is growing significantly due to lower costs and higher limits on the number of participants.

The project’s meetup, called Cosmos India, was scheduled for March 15 but, because of coronavirus fears, had to be moved online. According to Atmaram, Cosmos India managed to host over 60 participants and 10 speakers from across the globe instead of the initially confirmed 30 members and three speakers.

Hsin-Ju Chuang, founder of Dystopia Labs, told Cointelegraph that the Trust-Less 2020: Proof of Stake Validator Summit, which was organized by her in February, was “a huge success.” She also explained that the online format may be a good option, given that many in real life conferences have lost their true value:

“IMO, most IRL crypto conferences last year were poorly run; it was basically the same people traveling the world together; people were not going to IRL conferences to attend sessions and learn (they were flying out to network / do meetings).”

Barbara Calderazzo, a representative of the communication team of blockchain project Interlogica, told Cointelegraph that the project managed to quickly respond to the coronavirus outbreak in Italy and moved its Bitcoin Venezia Meetup online. 

“Our Virtual Bitcoin Meetup is a live event, in many ways similar to the physical one. We first ‘aired’ on March 11 with a huge success: 200 people during the livestreaming is an unexpected result. […] The attendants were very reactive and they asked several questions (through chat or ‘in person’) during the evening.” 

Additionally, blockchain companies are increasingly opting for online events amid intensifying coronavirus concerns. For example, Nodl, the project that develops the Lightning Network, initially planned to hold its own event during Bitcoin 2020 but is now considering the possibility of moving it online. The company has already conducted a survey among its users where 65% supported the initiative. Bitcoin Cash has also joined the list of projects moving its regular meetups online.

New creative solutions are coming as virtual gatherings gain momentum. BitAngels has announced virtual events that feature startup pitches, keynotes and panels; BlockDown launched a two-day virtual crypto conference; and Bitcoin advocate Udi Wertheimer is apparently developing a virtual reality platform for crypto community meetups.

Related: Stuck in Quarantine? Become a Blockchain Expert With These Online Courses

Nevertheless, some feel reluctant to alter their plans, especially when it comes to other regions less affected by the pandemic. Among the examples is the Blockchain Africa Conference, which was held on March 11 and 12.

However, some speakers opted-out of participating due to quarantine recommendations. Charles Hoskinson, CEO of IOHK, the company behind Cardano, told Cointelegraph that he decided to cancel his speech at the aforementioned Blockchain Africa Conference. He, instead, recorded a video of his presentation, which was subsequently shown at the conference.

How will this affect the market?

The coronavirus pandemic has already affected the price of cryptocurrencies in general and the activities of blockchain companies in particular. In March, Canaan, the leading manufacturer of mining equipment, left the Chinese market, while Coinbase, Waves, Binance and other large companies offered their employees the option to work remotely.

A lot of project launches that were planned for this year will also be significantly impacted, according to Atmaram from Persistence, the enterprise hub of Cosmos, whose protocol launch in 2020 has been affected by the pandemic. He told Cointelegraph:

“Coronavirus will pose difficulties for the community as a whole, and this might affect the timeline of the projects. Globally, this year crypto and blockchain adoption was predicted to boost. With this pandemic, progress has slowed down.”

A lot of conferences that were planned around significant events, like the upcoming Bitcoin halving, have either been suspended or canceled. Consequently, this will impact the new wave of users coming into the ecosystem, as predicted by Atmaram.

The cancellation of crypto conferences will, in turn, entail financial losses for the organizers and sponsors, according to Michael Garbade, the co-founder and CEO of Education Ecosystem, a decentralized learning ecosystem:

“Remember, they [organizers] hired and paid employees for a job that wasn’t completed. It’s either they have to refund the participants’ money or postpone to a later date. […] The cancellations affect the marketing efforts of the participants. They attend these conferences to market their products or services, but they can’t due to the ongoing coronavirus pandemic.”

However, there are organizers who believe in finding a new approach amid the coronavirus outbreak and that it may bring even more benefits to their businesses. Sergey Voskolovich, part owner of DAO.Digital investors club, told Cointelegraph that although he made the Global Investors Virtual Summit free for everyone, the company won’t suffer financial losses:

“We only take money for advanced options and participation in the investors‘ club. For those who want to present their project to investors to attract investment, the cost of participation has turned from $2,500 to $ 0. […] In doing so, we will not suffer any losses. Because our summit will be several times more massive. And our losses will be more than compensated by advertising revenue.”

In general, according to Evan Luthra, a Top 30 Under 30 tech entrepreneur and blockchain expert, what is happening in the world is providing new opportunities for participants in the crypto industry. In particular, he began releasing more online podcasts to talk to audiences. He told Cointelegraph:

“Doing online events also makes it very easy for instant sharing with friends and is a great way to reach out to people who are working from home and usually wouldn’t have time to attend a conference. I do realize this affects a lot of stakeholders in a negative way, but we need to come together to help stop the spread of this dangerous virus which is already a pandemic and growing very fast.”

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As countless crypto events are being delayed or canceled due to the coronavirus outbreak, many organizers have found creative ways to make the event happen

FCA’s New AML Regime – UK’s Crypto Market Will Have to Adapt in 2020

FCA’s New AML Regime – UK’s Crypto Market Will Have to Adapt in 2020

The FCA has officially taken over as the ALM/CTF supervisor for the U.K., but what ramifications will this have on the wider crypto industry?

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The Financial Conduct Authority (FCA) is now the United Kingdom’s sole Anti-Money Laundering (AML) authority for the crypto business. After a decade of compliance under a laissez-faire approach to AML legislation, U.K.-based crypto firms now face a significantly more stringent set of rules. With the FCA thrashing U.K. crypto regulation into shape, the consequences upon start-ups, user privacy and adoption will likely be wide-reaching. 

In its early stages, decentralized finance (DeFi) has uncovered a bounty of possibilities within the economic sector. From borderless banking to using blockchain technology, DeFi is leading a comprehensive coup d’état against an entrenched financial industry. Nevertheless, inherent benefits aside, cryptocurrencies aren’t without their pitfalls.

One particular snag arises from one of the fundamental characteristics of cryptocurrencies: anonymity. Within any given transaction, personal information is confined to a pseudonymous string of characters, also known as the public address. 

This singular address provides everything needed to carry out a monetary transfer, without compromising on user privacy. Given this, it’s perhaps unsurprising that money laundering miscreants are forming an affinity with digital assets.

Regulation rising

Last year, tensions surrounding cryptocurrency money laundering were front and center. A report from analytics firm Chainalysis confirmed that $2.8 billion of illicit Bitcoin (BTC) had been laundered via crypto exchanges in 2019. However, rather than condemning the exchanges themselves, the report took aim at the underregulated over-the-counter brokers operating within them.

Speaking to Cointelegraph, Jesse Spiro, head of policy at Chainalysis, believes that „Cryptocurrency’s inherent transparency makes this a solvable problem,” adding that the issue may have an internal solution:

“Money laundering in the fiat world is typically a black box that can often only be opened by getting a search warrant and poring over a suspect’s bank records. Here, the industry and law enforcement can see how these bad actors move money and take steps to shut them down.“

Looking to solve them the dilemma — but refusing to abide by inherent transparency alone —  the Financial Action Task Force (FATF) introduced the Travel Rule — a requirement forcing member nation crypto firms to disclose customer information on transfers over $1,000. 

This resulted in an entirely different set of tensions but from the cryptocurrency community this time. Many propagators of the industry remain diametrically opposed to the Travel Rule, deeming it an invasion of financial privacy. Spiro confirmed that the new rule posed a problem for privacy coins in particular:

“We expect this trend to continue as local regulation around the world begins to align with FATF, and privacy coins such as Zcash emphasize their ability to ‘turn on’ transparency as well.”

Indeed, paying no heed to the zeitgeist of the digital generation, scores of regulators followed the FATF’s suit, bolstering their own crypto-centric AML policies.

Related: New EU AML Compliance Laws Could Disrupt the Crypto Industry

In Europe, the EU released its 5th Anti-Money Laundering Directive (5AMLD). Along with it came a heavy crackdown on money laundering and terrorism financing. The directive upped the ante on the already unforgiving Know Your Customer (KYC) and AML compliance — forcing multiple crypto firms into liquidation. U.K.-based crypto wallet provider Bottle Pay was among the first casualties citing a refusal to disclose user information as the primary basis for its termination.

The FCA’s demands

Things are about to shake up even more for the British-based companies. Last year, in late October, the FCA declared it was taking over as the AML and Counter-Terrorist Financing (CTF) supervisor of the U.K. But what does this mean for U.K. crypto firms and the wider cryptocurrency market?

The FCA is tasked with ensuring that all U.K. crypto firms adhere to the AML/CTF policy. The bulk of this AML compliance is gleaned from a menagerie of legislation, including the EU’s 5AMLD, and the amended Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.

FCA jurisdiction officially came into effect on Jan. 10, 2020. From here on out, all U.K.-crypto companies are required to register with the agency. Luckily, existing business operations may continue unregistered but are required to sign up for FCA supervision by Jan. 10, 2021 — or terminate all activity.

Nevertheless, FCA supervision will be undertaken regardless of company certification. This supervision will consist of the same approach faced by other organizations within the agency’s regulatory scope. Additionally, businesses exhibiting higher risk will incur a “more intrusive” level of scrutiny than others. 

As part of their supervisory assessments, the FCA requires businesses to provide policies and procedures in mitigating any AML/CTF risks. The agency advises firms to carry out their own evaluation of risk controls to confirm suitability. This also includes appointing a member of the board to ensure adherence to AML/CTF policy.

Persecuting privacy

While these protocols appear fairly typical, probe deeper into their “non-exhaustive” list of compliance orders, and you’ll unearth one stipulation that stands out as potentially problematic.

Nestled into the FCA’s supervisory guidelines is the following requirement, prompting crypto firms to:

„Undertake ongoing monitoring of all customers to ensure that transactions are consistent with the business’s knowledge of the customer, the customer’s business and risk profile.“

It seems the FCA isn’t taking an easy line when it comes to AML/CTF compliance. And while this was expected, the adage of regulation stifling innovation is perhaps applicable. As we’ve observed so far, the inability to provide financial privacy has already backfired for several crypto firms — and will likely impede exchanges and wallet providers more than most.

Anonymity sacrifices aside, the necessity to undertake KYC checks for every patron is sure to cause delays. However, with increased financial responsibilities along and added staffing requirements, the burden on crypto firms is becoming increasingly heavy.

Universal consequences

Cal Evans, a managing associate at Gresham International and a U.K. lawyer, aided the FCA in forging their crypto guidance. Speaking to Cointelegraph, Evans weighed in on the new regime’s potential ramifications on the broader crypto market:

„As we saw with the earlier EU draft of the law, the whole purpose of these measures (across the EU) is to stop the abuse of anonymity being used within the crypto space. These new measures will 100% impact on the privacy of crypto users. They are trying to stamp out the privacy associated with the use of many cryptocurrencies.“

Of course, while several cryptocurrencies can provide a degree of anonymity, none offer the same level of obscurity as the privacy coin. It stands to reason that these cryptocurrencies will cease to exist, at least via U.K.-based exchanges. Evans argues that many will simply migrate off-shore:

„Privacy coin holders will be impacted by this the most (within the U.K. market), however, many will most likely trade these coins privately or through an exchange which does not deploy such high KYC requirements. This means you will see many ‚private chain‘ coins move to off-shore exchanges.“

Still, all things considered, regulation remains an innately positive thing. In fact, for the cryptocurrency industry, it’s a blessing — a well-disguised blessing, but one nonetheless.

This much is evident from Chainaylsis’s money laundering report, which concluded that fitting KYC implementation would have stopped the illicit BTC dealings in its tracks. Spiro stands by this, opining that local regulation, if implemented globally, could stamp out illicit activities and bad actors, which, in turn, might be hugely beneficial for mainstream adoption:

„Broader regulatory initiatives (FATF, 5AMLD) have already been initiated, and now local regulation is starting to follow, which is the intended progress for AML/CFT regulation. Additionally, as we see more illicit activity mitigated as the result of regulation, institutional adoption will become a reality, which will be key for future global adoption.“

Indeed, alongside effective regulatory oversight comes further legitimacy. London has always been a pioneering force in the fintech industry. However, with a major U.K. regulator now keeping tabs, the crypto industry will arguably garner further respect from the broader financial sector, possibly encouraging institutional participation within the U.K. Evans conceded that while these new regulations will boost institutional interest, it may end up alienating startups:

„The U.K. has long been a ’safe heaven‘ for companies looking to operate in the crypto market. The ease of incorporation and flexible approach to crypto that the crypto task force had taken to date, often meant that crypto companies could operate within the U.K. with relative ease. The biggest impact we are likely to see is startups avoiding the U.K. altogether and more regulated ‚established‘ firms moving there.“ 

Startups remain a crucial facet of any economy. These firms not only generate fresh jobs but also instill further dynamism to the market by encouraging innovation and stirring competition.

This isn’t the only issue arising from the FCA’s new regime, according to Ian Taylor, the chair of CryptoUK, a self-regulatory trade association. Speaking to Cointelegraph, Taylor argued that the FCA may have left some sizable holes yet to be patched and that the FCA’s controls lacked clarity on global access to the U.K. market:

„The draft definition of cryptoasset income implies that the fees will apply to U.K. legal entities, which would infer overseas firms might be able to operate either without license or without being required to establish a U.K.-based legal entity.“

Essentially, this creates a loophole that could afford foreign companies leverage over U.K. based businesses. „The FCA should consider clarifying this position to ensure fairness of competition,“ Taylor concluded.

As with most regulatory shake-ups, The FCA’s new regime is a double-edged sword. There’s a delicate balance to be struck between smothering innovation and allowing a no-holds-barred marketplace. For the most part, the consensus seems to be that the FCA is slowly reaching an equilibrium.

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The FCA has officially taken over as the ALM/CTF supervisor for the U.K., but what ramifications will this have on the wider crypto industry?

FATF AML Regulation: Can the Crypto Industry Adapt to the Travel Rule?

FATF AML Regulation: Can the Crypto Industry Adapt to the Travel Rule?

Bitpanda Exchange CEO said the crypto industry will face up to the FATF’s travel rule: “The effects on the industry will be immense, but the industry will cope with that and adopt”

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Regulators are clamping down on cryptocurrency, and companies around the world are feeling the strain. In late June, one of the most authoritative regulatory organizations worldwide, the Financial Action Task Force (FATF), issued new guidelines on how digital assets should be regulated. 

While FATF recommendations are not legally binding, the G-20 stated that it uses them to regulate cryptocurrencies for Anti-Money Laundering (AML). For businesses that fail to make the grade, this could mean being shut out of lucrative international markets. No punitive measures have yet been imposed, but companies and crypto exchanges alike are acting fast. 

What are the FATF guidelines?

In what has now become known as the travel rule, the FATF guidelines require regulators and Virtual Asset Service Providers (VASPs) — namely, exchanges from various countries worldwide — to collect and share personal data during transactions. The recommendation imposes the same standards on the cryptocurrency sector that are normally shouldered by the banking industry.

Although regulation of cryptocurrency is a hotly debated issue in the crypto community, the FATF guideline amendment proved to be more controversial than usual, as it compels VASPs to share the personal data of their customers. While many exchanges and wallet providers now ask customers to verify their identities, transactions using cryptocurrencies are largely anonymous. Payments are logged in the blockchain, but no personal details are revealed in the process. 

Related: FATF Regulations – Is It the End of Crypto Anonymity?

For some critics, the anonymity of cryptocurrencies makes them a perfect tool for carrying out criminal activity. Despite this, as Cointelegraph has previously reported, the level of illegal activity facilitated by the use of cryptocurrency is dwarfed by cash, and exchanges and wallet providers alike are generally cooperative with authorities. 

The FATF has given local authorities and VASPs one year to form an appropriate regulatory framework that complies with the travel rule. With four months already gone, the pressure is mounting on VASPs to come up with a solution. 

Hopes of privacy coins shattered? 

Privacy coins are cryptocurrencies that conceal user data. They are among the most controversial methods of payment available on the market. Some coins hide user identity, while others go as far as hiding the amount of cryptocurrency held and traded in wallets. 

For some, the need to conceal such information is evidence that the coins are enabling illicit activity, notably the buying and selling of illegal drugs on the darknet or potentially even supporting terrorist activity. For advocates of the technology, it is about autonomy of personal finance and operating free of state surveillance. 

But the new FATF guidelines are set to change everything. Although the deadline for VASPs to comply with the new regulations is still months away, privacy coins are already beginning to feel the heat. 

Related: South Korea Is Hoping for Regulatory Clarity as Crypto Laws Toughen

Earlier this month, OKex, one of the four largest cryptocurrency exchanges, announced the launch of a self-regulated organization that will standardize compliance policies across the world, in observance of the FATF guidelines. The local arm of the Korean trading platform then delisted five major privacy coins, citing the new guidelines. 

Ryan Taylor, CEO of Dash Core Group, told Cointelegraph that although the FATF enjoys global influence, the responsibility to draw up appropriate legislation still lies with local authorities, meaning that the implementations of the travel rule are likely to be unequal: 

 “Thus far, it appears that exchanges are preparing to address the recommendations put forward by the FAFT. However, because the FATF guidance must be implemented in local jurisdictions around the world, and those jurisdictions will undoubtedly act on the guidance differently, exchanges are struggling to understand the specific requirements they will need to meet. For now, that is a guessing game for them.”

Although Taylor outlined his view that the FATF guidelines are largely an attempt to crack down on what it perceives as an opportunity for money laundering and terrorist financing, he emphasized that “the vast majority of people that use privacy-enhancing features are simply using them for personal privacy, not to facilitate nefarious activities.”

Not all privacy coins provide the same level of anonymity. Although the FATF guidelines seem most problematic for privacy-focused coins, Taylor explained that only the most secretive options are at risk from the travel rule:

“Privacy and anonymity are not binary, but rather a spectrum. Coin mixing wallets can be built for any transparent blockchain such as the implementations for Bitcoin and Dash, and those options require no changes to the transparent nature of the blockchain. […] Given the diversity of options, and the differing treatment of these options in various jurisdictions, it is clear that only some of the most anonymous implementations are at risk.” 

Taylor concluded that Dash will be able to comply with the new regulatory standards, but cryptocurrencies that offer total anonymity might not be able to comply with the data required by the FATF.

Travel rule could level the playing field 

Cryptocurrencies themselves are not the only entities at risk from the travel rule. Exchanges are the hubs through which thousands of investors buy and sell crypto. Although cryptocurrency enables peer-to-peer trading without an intermediary, exchanges form a vital part of a healthy and accessible cryptocurrency sector. 

Cointelegraph spoke to John Roth, chief compliance and ethics officer at American cryptocurrency exchange Bittrex about how the changes are likely to affect trading platforms. According to Roth, the guidelines are only the latest in a long series of recommendations from the FATF: 

“The new guidance about emerging technology is not a surprise. The industry is currently split between compliant, regulated exchanges and those that are not. Hopefully the attention FATF is giving to the space will force non-compliant exchanges to join the mainstream. Currently, exchanges that chose to bear the costs of compliance, which are considerable, are at a competitive disadvantage in the global marketplace. Uniform rules uniformly enforced will level the playing field.”

While admitting that the FATF guidelines could bring about a more standardized approach to compliance among exchanges, Roth told Cointelegraph that, “Criminal actors do not need to use exchanges to engage in money laundering, and in fact are well advised to stay away.”

He further added that regulators are ignoring several fundamental truths of how cryptocurrency operates, that transactions are easily traceable on the blockchain and analytical tools can be used for tracking: 

“This means that while compliant exchanges and honest actors will bear the cost and inefficiencies involved in the rule, criminal actors can circumvent the requirements with a click of a mouse. It increases the costs and complexity of compliance without addressing the real concerns about money laundering.” 

Although the FATF has given a one-year deadline to VASPs, Roth said that a suitable solution may take longer due to the industry’s diversity and the potential expense of a new method of collecting the necessary information: 

“No one in the industry is currently compliant with the travel rule, an issue that us and other exchanges are discussing solutions to. The issue here is that a solution would require consensus in the industry and require the use of new and untested solutions to handle the speed and volume of data.” 

Bitpanda CEO calls for legal clarity

Bitpanda, a Vienna-based cryptocurrency that launched its global exchange service in June, is also wary of the potential impact the FATF guidelines could have on the industry. Bitpanda CEO Eric Demuth told Cointelegraph that although the shockwaves are likely to be wide-reaching, he believes that the industry is in a good position to adapt: “These rules and the requirement to register is actually a good thing. What we still miss in this regard is legal clarity.” He went on to add:

“We strongly urge the FATF and all other regulators to verify the technical feasibility first, before setting such rules. The effects on the industry, especially on a global level, are from our side not yet clear. Compliance must be possible from a technical perspective and there is no clear way how to achieve that yet.”

Regarding the effects that this could have on smaller players in the industry, Demuth explained to Cointelegraph that this could encourage companies operating on a smaller scale to develop an anti-state mentality: 

“Our estimation is that smaller players are either choked out or go to the ‘dark side’ in the sense of offering services without a license. If this happens those VASP would lose all incentives to stick to any rules and might not stop by breaking only these rules. This could lead to a situation like in the old days of Crypto, where there was more a mentality to work against the state. Currently, most VASP try to stick to the rules.”

Although Demuth expressed his reservations about the travel rule, he is not against regulation of the crypto sector as a whole. While admitting the investment in securities and crypto assets should be regulated, Demuth said that other restrictions are not conducive to a healthy cryptocurrency sector: “The industry should be heard before setting new rules in place.” 

Similarly, Serhii Mokhniev, regulatory affairs counsel at London-based cryptocurrency exchange CEX.IO, told Cointelegraph:

“To succeed, regulation should be proper, reasonable, and proportionate. Overregulation may be even worse than no regulation at all, because the regulatory burden may kill the business or the very idea before it’s introduced to the public.”

Time to draw a line in the sand

Regulation is necessary in order to ensure that wider adoption of cryptocurrency is possible and that future investors are protected. But the question remains: Regulation on whose terms? Companies and exchanges alike are well known for paying lip service to the need for regulation. 

Related: Why Regulation Is the Best Thing for Crypto

Across the industry, there is a consensus that measures need to be put in place to prevent terrorist financing and stamp out money laundering. Beyond this, there is no clear direction for the industry as a whole. 

The travel rule from the FATF is a sign that the time has come to establish a boundary between regulation, technology and privacy. But what remains unclear is where that line should be drawn. As it stands, only the most private currencies face a serious existential crisis. With time quickly running out, VASPs are still scratching their heads about how to negotiate the looming regulations. Those that don’t comply will find themselves left out in the cold.

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Bitpanda Exchange CEO said the crypto industry will face up to the FATF’s travel rule: “The effects on the industry will be immense, but the industry will cope with that and adopt”

Brazil Authorities to Adapt Cross-Sector Regulations to React to Digital Transformation

Brazil Authorities to Adapt Cross-Sector Regulations to React to Digital Transformation

Brazilian regulators will create a cross-sector regulatory sandbox to respond to digital transformations powered by new technologies such as DLT

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Major government and financial authorities in Brazil have teamed up to develop a regulatory sandbox model targeting new technologies such as blockchain, Cointelegraph Brazil reports on June 13.

The new regulatory initiative brings together the Central Bank of Brazil, the Securities and Exchange Commission (CVM), the Superintendence of Private Insurance (SUSEP), and the Ministry of Economy’s Special Secretariat for Finance in order to adapt to the digital transformation affecting the financial, capital and insurance sectors in Brazil.

Revealed by the CVM, the project implies that emerging technologies such as blockchain, robotics and artificial intelligence have enabled the establishment of new business models that generate new products and services of higher quality and scope.

The regulators have expressed their intention to enforce their regulations in corresponding sectors to maintain compliance in accordance with the rules of each industry, regardless of how services or products are delivered, the CVM stated in the announcement.

As a part of the initiative, the participating regulators will also seek to act jointly in regard to the technology-related activities that go through more than one regulated market, the report notes.

The Financial Action Task Force also recently announced plans to release a note clarifying how participant jurisdictions should oversee the digital assets sector.

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Brazilian regulators will create a cross-sector regulatory sandbox to respond to digital transformations powered by new technologies such as DLT