Why Crypto Exchanges Shouldn’t Have to Follow the Travel Guideline

Restrictive crypto rules can originate from inside the U.S. We have actually certainly seen this with the Securities and Exchange Commission and the New york city chief law officer’s office.

But the next wave of difficult brand-new guidelines will be coming from outside the U.S. And they’re going to create big issues for crypto users.

An international agency called the Financial Action Job Force (FATF), whose members include 36 countries (plus 2 regional bodies) and a few of the biggest economies worldwide, is expected to publish new operating procedures for crypto exchanges later on this month. The brand-new policies include the “travel guideline,” which would require exchanges to pass consumer info to each other when transferring funds. The rule is nothing new for banks. But it’s a big issue for crypto.

The travel guideline is designed for a monetary system that depends on intermediaries to verify both sides of a transaction before any money is moved. It goes beyond basic “know your client” (KYC) rules that a lot of controlled crypto exchanges are required to follow. Basic KYC guidelines need exchanges to verify and keep records of their own users’ identities, the idea being that the much better exchanges/banks know their customers, the much better they have the ability to combat terrorism funding, loan laundering and other deceptive activities. However with travel rules, exchanges should likewise recognize both the “sending out” and “receiving” celebrations of a deal.

The way our present monetary system is established, banks have little problem doing this. A wire transfer, by style, requires bank, branch and account numbers for the recipient.

But a crypto deal needs just an address.

By design, an exchange sending out crypto on behalf of a client does not understand who or what owns the location address. The destination might be an individual, exchange or service. According to Joseph Weinberg, co-founder of blockchain startups Shyft Network and Paycase Financial, it could also be a “maker, smart contract and any other infinite set of potential endpoints.”

At best, this requirement would be a hassle for crypto consumers. At worst, it might be a significant obstacle for the whole industry.

A compliance officer at a U.S. exchange says implementation is feasible … however is more of a “paper-chasing exercise” that won’t further police objectives. “We’ll wind up troubling excellent customers and asking them for info we can’t validate,” he said.

Weinberg said, “It might drive the whole [crypto] community back into the dark ages.”

This problem strikes at the beating heart of why cryptocurrencies were created in the first location. Bitcoin’s market cap has actually grown to $144 billion because it increases openness (the whole blockchain is open to anybody to view) while boosting personal privacy and identity protection. Its trustless technology is appropriately thought about revolutionary for its capability to cut out the middleman. It does not need (or desire) banks or exchanges to manually produce and monitor a proof. Nor does it desire outside entities representing the old banking order to be able to gain access to such details.

Regrettably, the travel rule will make its way to the U.S. The U.S. Treasury’s Under Secretary for Terrorism and Financial Intelligence stated the standard is on track for publication next month, and provided every sign that the U.S. will be adopting it, as will the vast majority of the developed nations.

I’m all for great rules and a practical technique for battling terrorism. However the travel rule is neither. About 200 to 300 people went to FATF’s consultative conference in Vienna in early May to voice their concerns. But I’m amazed this is occurring with so little demonstration.

The battle lines have never been drawn this dramatically in the past. I resent that I’m being forced to pick between combating terrorism and protecting cryptocurrency … in between utilizing regulated exchanges and using nonregulated platforms.

The last thing the federal government must desire is to drive cryptocurrency underground. However that is where we may be headed.

Great investing,

Andy Gordon

Co-Founder, Early Investing

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