Opinion: The best use case for Bitcoin is as an anti-corruption tool

In the ruthless cat and mouse game between regulators and cryptocurrency developers, these "cats" will add some powerful firepower – this time in the form of a global alliance.

But if you think that the "intergovernmental Financial Action Task Force" (intergovernmental financial action task force) will soon introduce the "know-your-customer" (KYC) compliance standard means At the end of the mouse, you are very wrong.

(Note: On May 22, the FATF issued guidelines to member states requiring digital currency exchanges to implement KYC data migration rules similar to those of the banking industry, ie digital currency exchanges must also communicate with each other when they transfer funds.)

The FATF's move is expected to be released next month. If there is any impact, it will prompt the project side to accelerate the development of unmanaged exchanges and other tools, making it easier for end users to directly outside the regulated intermediaries. Trading.

CoinDesk executive editor Marc Hochstein explained last week that the new rules may require exchanges and other escrow entities to obtain identity information about the parties before they are allowed to trade through their platform. These entities are responsible for keeping the customer's cryptocurrency.

Much like the FATF's TravelRule for correspondent banks, the new regulatory approach will be supported by the unique powers of the WG's member institutions, and if they are judged to be non-compliant, they have the right to include the entire country. Gray list" (finally blacklisted).

When combined with the EU's forthcoming AMLD5 anti-money laundering regulations for cryptocurrencies, this new framework is reminiscent of an all-encompassing global system of cryptocurrency transactions in which no one is missing.


Was the vision of Nakamoto's time to be ruined?

Encrypted currency believers with libertarian ideas will think that this is a damn monitoring system that violates the principle of resistance review established by Bitcoin.

From a practical point of view, the new rules will become a burden for the client to handle the exchange. It is likely to stimulate industry consolidation, as smaller participants may find compliance costs too high. In a report submitted to the FATF, the blockchain analysis company chain argued that the new regulations are impractical and will drive more cryptocurrency activities into the service sector, making it more difficult for authorities to track illegal activities.

Regrettably, these provisions may also exacerbate the problem of “eliminating risks” by excluding billions of unidentified people in developing countries from the global financial system.

But not all of them are lost. In most countries, it is not illegal to place the cryptocurrency itself under its own supervision. Moreover, as the guidelines issued by the Financial Crime Enforcement Network (FinCEN) recently stated, at least for now, global regulators will not implement the same KYC requirements for suppliers of self-service custody software. (See "FinCen's latest guide: Who can get a regulatory exemption")

Then, it may happen that parallel with the FATF-regulated ecosystem of regulated client receiving institutions, it will become a completely independent economy, that is, exchange of peers between those who control their own cryptocurrency.

If you save your cryptocurrency with Coinbase, you will not be able to resend or receive the password from any old Bitcoin address if it has passed the KYC process. Once you transfer your money to an unmanaged account, you are free to send the money to any of your own hosted addresses, but if you have never officially associated your identity and address with a regulated entity, you cannot trade Coinbase addresses or One of the hosting providers by any other specification.

However, the key is that this strict regulatory framework still leaves room for Nakamoto's vision of the p2p payment system. As more technical and business model development work progresses, the system can still become quite large.

In fact, the new rules may prompt developers to address core technology and logistical challenges more rigorously, limiting the use of cryptocurrency wallets that are kept on their own. These challenges are in the three categories of security, market coordination and regulatory access, all of which currently show significant progress.


One of the key motivations for people to hold cryptocurrencies through hosted services such as Coinbase is that they are not willing to risk placing their private keys in the wrong place or being stolen. The stories of hacking and loss abound, and for a long time, these stories have been hitting newbies "becoming their own banks."

In recent years, security hardware wallets such as Ledger and Trezor have made it easier for people to control their assets without exposing their private keys to cyber hackers. But security experts claim to have discovered the vulnerability. And the user experience is still inconvenient for people who don't understand.

However, the new generation of smartphones with military-grade security and end-to-end encryption technology should make it easier for users to securely store cryptocurrencies locally on a device that can easily connect to the Internet for global payments. HTC is ahead of this technology. Samsung is catching up.

Mobile phone manufacturers are using sophisticated, locally stored biometrics to tie control to users. When combined with multi-signature technology, it will provide a humanized key recovery solution. These “seed phraseskept” are kept at trusted partners, and with some education, the risk of loss can be reduced to a very low Level.

Other changes in the ecosystem, such as decentralized insurance plans, and more radical measures that require handset operators to take responsibility for “SIM card exchange” attacks will also boost confidence.

Over time, more and more people will feel more reassured about managing their own critical custody.

Market coordination and fiat uphill

The next challenge is to reduce the broad reliance on client-based switching.

Users of cryptocurrencies need to find buyers and sellers effectively, and so far, they have relied on centralized exchanges, and centralized exchanges are a key goal of the new regulations.

The answer lies in the rapidly growing field of decentralized exchanges. In this area, trusteeship is reserved by investors, and technologies such as atomic swaps allow for seamless point-to-point transfer of assets without either party being able to deceive the other party.

As an emerging technology, it is currently difficult for DEXs to attract the liquidity of large, centralized exchanges, which makes their appeal less attractive. But with the release of Binance, this area is likely to grow rapidly.

At the same time, Boston-based startup Arwen launched an agreement that allows investors to access the matching engines of large centralized exchanges, but allows them to retain custody through a smart contract solution. KuCoin has integrated the beta version of the technology into its exchange.

Even if decentralized exchanges and self-hosted transactions can help encrypt encrypted transactions away from the regulatory network, they can't solve the problem of using legal tender. Currently, this service is almost exclusively provided by regulated centralized exchanges.

The solution lies in a new batch of stable coins , MakerDAO algorithm solution Dai and other dollar-to-dollar tokens, which are competing with the stable coins supported by reserves such as Gemini and Paxos, and the consortium led by Circle and Coinbase.

In theory, there is no technical means to prevent these stable value tokens from entering and leaving the unidentified self-storage wallet, which provides a way to solve the problem of fiat entering the ramp, enabling people to obtain the de facto dollar (if not actually Dollar). Only when users convert them into actual dollars through the company that issued the token will they enter a regulated environment and must indicate their identity.


Facebook VS Bank?

Now all of these services must be supported by real regulatory resources, which means that stable currency providers and DEX software vendors still need bank accounts. Given that banks have been reluctant to support cryptocurrency operations, obtaining cryptocurrencies may be a potential barrier to start-ups that want to grow in this ecosystem.

In this way, banks may continue to be the wedge for regulators to impose restrictions on the cryptocurrency industry.

However, as I pointed out elsewhere, banks are increasingly interested in other developments in the blockchain, such as establishing markets for tokenized stocks and bond issuance, which will encourage them to support tokenized payments. This will ultimately require a more friendly approach to some of these service providers, especially for stable currencies.

Most banks are reluctant to give the future of fiat digital payments to competitors such as JPMorgan, and are not willing to turn Facebook into more than 2 billion active users into an instant global payment network that bypasses banks. The irony is that this may bring them closer to these rebel suppliers who support self-client services.

In other words, the performance of "Cat and Mouse" will continue.

The author: Michael J. Casey, senior adviser to the Chairman of CoinDesk Chain Research Advisory Committee of the blocks, also of MIT (MIT) digital currency program (Digital Currency Initiative).

Compile: Sharing Finance Neo