Decentralised exchanges — don’t overlook KYC/AML policies
The rapid growth in cryptocurrencies and the anonymity that they provide users has created considerable regulatory challenges, including the use of cryptocurrencies in illegal trade (drugs, hacks and thefts, human trafficking, illegal pornography, even murder-for-hire), potential to fund terrorism, launder money, and avoid capital controls. There is little doubt that by providing a digital and anonymous payment mechanism, cryptocurrencies such as bitcoin have facilitated the growth of ‘darknet’ online marketplaces in which illegal goods and services are traded.
The scale of illegal activity suggests that cryptocurrencies are transforming the way black markets operate by enabling ‘black market e-commerce’. In effect, cryptocurrencies are facilitating a transformation of the black market much like PayPal and other online payment mechanisms revolutionized the retail industry through online shopping. But to use a crypto-currency for illegal purpose, where to get one using your fiat currency?
Let us have a look at the existing & common methods of buying a crypto-currency using your currency.
Where to buy a Crypto-currency using your fiat money ?
Cryptocurrency exchange is a marketplace where cryptocurrencies will be traded against each other and with fiat currencies. Cryptocurrency exchanges are the bridges between blockchains powered by Bitcoin, Ether and other cryptographic protocols.
Basically, we have Centralised & Decentralised Crypto-exchanges;
Centralized exchange platform enable users to make deposits to the exchange in order to facilitate an exchange/trading transaction. These funds are controlled by the centralized exchanged service. This means that order-books, as well as custody, is firmly in the hands of the centralized platform service.
Decentralized exchange is one in which the architecture of the platform has no central controlling server (or bundle of servers). As a result, no third-party escrow intermediary is required to hold the funds of the participants in the exchange transaction.
The anonymity offered by cryptocurrencies has greatly contributed to the boom in online and cross-border commerce of illegal goods particularly via the darknet. Let us now see how anonymous are our transaction on exchanges.
Anonymity of Centralised Exchange vs Decentralised Exchange :
Some centralized platforms used to allow anonymous trading accounts on their platforms. However, the raft of government regulations that have sprung in recent months has led to the adherence to strict KYC and AML laws. It is difficult to trade anonymously on a centralized cryptocurrency exchange platform. Nowadays, almost all centralised exchanges are making KYC/AML guidelines mandatory to their users.
Decentralized cryptocurrency exchange platforms are all about anonymity. You don’t need any personal ID verification. Consider them to be the distributed blockchain-equivalent of centralized exchanges. There is no single point of entry, just like a blockchain. Users control their private keys as well as their funds at all times in a decentralized exchange.
Undoubdetly, decentralized exchanges adds an innovation in the design of cryptocurrency exchanges by implementing P2P network architecture which offers a series of benefits including faster & cheaper transactions, being less susceptible to malicious attacks, seamless integration with popular hardware wallets,etc.
However, cryptocurrency innovators need to keep the needs of society and consumers in mind. They need to ensure legal compliance to protect their community and ensure trust and safety online.
While the technologies are new, it doesn’t imply that there are no laws for the field. Existing regulations are already in place to protect investors, prevent fraud and ensure illicit funds doesn’t get laundered.
It would be interesting to see how the upcoming innovative cryptocurrency exchanges are going to deal with the security standards.
Let’s have a look at the security & compliance standards of an upcoming European exchange ; Blockchain.io
Blockchain.io claims to implement the highest level of Security, Reliability, and Accountability standards.
To achieve this, the team will rely on its advanced knowledge of cryptographic technology, its operational in-depth understanding of the crypto world, its strict discipline in software development, and its longstanding commitment to compliance and accountability.
The team of Blockchain.io has an in-depth knowledge of cryptocurrency protocols. The founders of Blockchain.io pioneered cryptocurrencies in Europe in
2009. They subsequently created Paymium in 2011, making it the first European Bitcoin exchange.
Paymium claims the highest standards in security, reliability
and accountability, which will also be the hallmark of Blockchain.io.
Paymium has been operating hack-
free since 2013. A company culture of commitment to security and technological competence are the underlying basis for this excellence.
In terms of compliance and accountability, Paymium is, to the best of our knowledge, the only crypto exchange whose financial
accounts are fully audited by an external auditor with a European title equivalent to an American CPA. The platform applies on a voluntary basis, and complies with, European Banking requirements for anti-
money laundering (AML) and know-your-
customer (KYC) procedures.
Blockchain.io philosophy is to anticipate the regulatory requirements and become the first exchange to be fully compliant as soon as relevant regulations are being issued.
The team has engaged in regulatory watch and conducts frequent discussions with various State authorities to educate them in cryptocurrency issues and to ensure that the key values of the crypto community are understood and respected.
Compliance and security are closely intertwined, as are the legal and technology standards they imply. Mastering both will unleash the potential of the cryptocurrency ecosystem and trigger mass adoption among institutional and individual investors.
Paymium and Blockchain.io offerings are a perfect pair and the next step to meet the rising expectations of the crypto world as it evolves into the Internet of Value. It will be exciting to see once the BCIO exchange goes live in October.
To sum up, the future seems bright! But as the industry evolves, regulators will create new rules that reflect the specific situation of cryptocurrencies by time. Until then, all exchanges should do their part of responsibility, create compliance procedures that are defendable under the existing regulations. All exchanges should adhere to strict know-your-customer and anti–money laundering requirements by collecting identifying data from their users, which makes it challenging for criminal groups to convert their cryptocurrency into hard currency. Governments have a powerful imperative to fight money laundering, terrorist funding, fraud, and corruption and ignoring these rules will invite a crackdown by the authorities.
