Comprehensive compliance frameworks will drive mainstream adoption of decentralized tech
Transparency is an integral characteristic of blockchain. As a distributed ledger, blockchain platforms run on trust, incorruptibility, and traceability, amidst what is essentially a trustless system.
The concept of “trustless” is actually a misnomer. What blockchain does is minimize the trust required from any single actor in the ecosystem, and instead it distributes this trust mechanism across a decentralized network. Thus, there is trust, but not derived from any single entity. Rather, transactions are guaranteed through a consensus mechanism and secured through public-key cryptography.
Transactions on public blockchain platforms can be viewed and verified by anybody, although the actual owners of the private keys and transactions are nearly impossible to determine. Blockchain’s anonymous and decentralized nature obfuscates these details. And therein lies the potential for illicit, illegal, or even criminal usage of blockchain platforms.
This is what worries most regulators, and which has been a limiting factor to mainstream adoption. There is a concern that blockchain platforms and cryptocurrencies can be used for illegal transactions, money laundering, and potential terrorist financing.
We have interviewed experts who shared their insights on how comprehensive compliance frameworks will contribute toward that trust, leading to more mainstream adoption of blockchain and crypto.
Shared efforts toward better legitimacy
“One thing that can potentially accelerate mainstream adoption of blockchain tech and crypto would be adherence to comprehensive compliance frameworks that reduce risks and enhance the integrity of such platforms and transactions,” says Kenny Au, Founder at Elevate Ventures.
“There is a growing trend toward enterprises and monetary authorities adopting blockchain technology, but this requires regulations that facilitate the handling, trading, and settlement of digital assets,” adds Au.
“Currently, prejudice comes from the public and they thought cryptocurrencies are equal to scams,” says Sheldon Xia, Founder, and CEO of exchange platform BitMart.
Such prejudice is not unfounded, unfortunately, due to somewhat shady involvement in the past for crypto platforms like Bitcoin. Blockchain and crypto companies are changing this image, however. “Increasing the awareness and legitimacy of the cryptocurrencies shall be a shared goal with all the industrial players,” stresses Xia.
In a November 2019 survey by Chainalysis among leaders in the finance industry, a sizeable ratio responded that compliance, inability to curb illicit activity, and ability to comply with government regulations are among the top reasons preventing higher investment in and usage of cryptocurrency.
Madeleine Kennedy, Director for Communications at blockchain analysis company Chainalysis, shares on what makes crypto appealing for illicit use:
“Cryptocurrency’s decentralized, semi-anonymous nature makes it a uniquely appealing option for criminals, and their embrace of the technology has helped shape its overall reputation. But the upside is that unlike cash and other traditional forms of value transfer, cryptocurrency is inherently transparent.”
She adds that the right tools can empower regulators, law enforcement agencies, intelligence officials, and even businesses, in ensuring integrity in the system.
“Every transaction is recorded in a publicly visible ledger. With the right tools, law enforcement and the industry can curb its impact and stop bad actors from abusing the system and, in many cases, taking advantage of vulnerable people.”
Achieving stability in the marketplace
Decentralized tech has been lauded to revolutionize and innovate finance, but the volatility and uncertainty that has been attached to crypto and digital assets has put question to its viability as an instrument for value exchange and investment. Thus, achieving such stability will be necessary to mainstream adoption.
“While cryptocurrencies are often regarded as a high-volatility investment, trust and transparency are starting to bring more stability to the ecosystem,” says Andy Cheung, formerly Head of Operations at crypto exchange platform OKEx. “When digital asset exchanges can be counted on to operate fairly and securely, this can lead to a more stable marketplace.”
There are still some challenges, however. For one, global regulatory frameworks can be complex, given the differences in rules and regulations per jurisdiction. Take the case of stablecoins, for instance. “For example, the Libra Association initially proposed by Facebook is facing challenges from different countries such as the legislative and/or administrative bodies from the United States, France, and German due to the fact the adoption of stable coins will dramatically compromise the current foundation of the financial market,” says Xia.
He adds how trusted platforms can still play a part in better ensuring security in blockchain ecosystems: “Similar to the traditional financial markets, insurance, third party custody, security audit and risk management tools will have a more important position in securing the safety of digital assets.”
Working together as an industry
The key to success is cooperation and collaboration in the industry, amidst the different competing protocols, platforms, blockchains, and asset types. Cheung says:
“It is essential for cryptocurrency exchanges to work together in addressing the challenges our industry faces, including regulatory changes, compliance guidelines, and monitoring.”
He cites the launch of a global Self-Regulated Organization (SRO), as an example of a framework designed to foster collaboration among exchanges and financial services companies in tackling challenges of a fast-evolving industry.
“The SRO will work towards standardizing practices and policies for market-making, listings, and delistings of digital assets; along with other items critical to the growth of the entire industry. We are exploring the best structure for the SRO to foster long-term industry growth, and talking with potential partners to move this effort forward. By working together, we can set standards to usher in financial security for millions of people,” Cheung concludes.
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Sheldon Xia is the Co-Founder and Chief Executive Officer at BitMart. Founded in 2017, BitMart is a premier professional digital asset exchange platform, designed for both individuals and institutions. BitMart’s mission is to drive the world to a better financial system with more fairness and equality. The company believes that the decentralized digital currency will reshape the global economic system and the perspective on assets distribution fundamentally, such a new financial infrastructure would bring further economic innovation, efficiency, and financial freedom to the world.
Madeleine Kennedy is Director of Communications at Chainalysis, the blockchain analysis company. Chainalysis provides compliance and investigation software to the world’s leading banks, businesses, and governments. Experts in financial crime and economic analysis empower customers to derive insights they can act on. Backed by Accel, Benchmark, and other leading names in venture capital, Chainalysis builds trust in blockchains.
Andy Cheung is a dynamic senior executive with strategic mindset and global leadership experience in the Internet, Digital, eCommerce and Blockchain industry across Asia Pacific, with MNC experiences such as RR Donnelley Financials and Pacific Century CyberWorks, as well as Tech companies such as Huawei Technologies, Alibaba Group, Baidu International (iClick Interactive), Groupon Inc. and the world leading cryptocurrency exchange, OKEx. Andy possesses well-rounded skills in P&L management, sales & marketing, operations, and people management with solid track record in transforming businesses and delivering high performance and results.
Currently, the Co-Founder and Chief Executive Officer at BitWork, he aims to drive mass cryptocurrency adoption through exchange partnerships, advisory, marketing management, branding and public relations, fundraising and event management services.
Andy speaks fluent English, Cantonese and Mandarin and holds a bachelor degree of Information Technology.
Kenny Au is Founder at Elevate Ventures and has been a technology entrepreneur for almost two decades. As a visionary creator, Kenny has helped many top technology and blockchain entrepreneurs elevate to a higher level of themselves and for their organizations. He has helped companies across industries, stages, and geographies achieve their growth, scale, and relevance. As host of Game Changers, Kenny interviews leaders around the globe to share their insights and expertise through a collective platform.