Individual privacy and open access for all: A call to action for global blockchain standards setting
The cryptocurrency industry has been built from the standpoint that regulation doesn’t exist and that traditional rules and systems don’t apply to its development and growth. Shyft Network’s co-founders have been in this space since 2010, and have been actively involved in shaping global regulation.
We designed Shyft Network as a response to our vision of where the world is moving. We believe that our infrastructure is a fundamental necessity for the cryptocurrency industry to interoperate with the traditional world, and we’ve worked to harden our network and industry against risks and threats.
Two years ago we realized that as the cryptocurrency movement gains global significance, the most extreme threat facing our ecosystem will be that of misinformed regulation.
At Shyft Network, our view is that effective regulation of the cryptocurrency space must not juxtapose core innovative tenants of this technology: individual privacy and open access for all.
The Financial Action Task Force’s (FATF) recent 7B guidance represents a threat to the principles foundational to cryptocurrency, and in reaction, we believe that industry players must work together with regulators to influence regulation and policy decisions.
(1) The First Frontier: Recent FATF regulation
The FATF was created by the G7 and the G20 as an inter-governmental policy-making body responsible for issuing guidance to national regulators on best practices for combating global financial crimes, influencing global compliance standards such as KYC and AML requirements.
A recent statement from the FATF calls for enforcement of the “travel rule”, which requires service providers to collect, store, and share all sender and receiver data pertaining to all transactions of virtual currency:
“Countries should ensure that originating VASPs [Virtual Asset Service Providers] obtain and hold required and accurate originator information and required beneficiary information on virtual asset transfers, submit the above information to beneficiary VASPs and counterparts (if any), and make it available on request to appropriate authorities.”
This quick-handed guidance by the FATF is reminiscent of a precedent set by the traditional financial space, where individuals are neither able to maintain any semblance of anonymity nor allowed to decide or know which intermediaries are storing their private data. Furthermore, this guidance is incredibly vague and all-encompassing, as it is unclear today to which types of transactions this regulation will apply, and which categories of industry contributors will qualify as the “service providers” required to share transaction data.
This lack of clarity is a huge red flag since it proves that the FATF is unaware of both requisite complexities to effectively require, validate, store, and share sensitive user data from blockchain transactions, and the severe limits such requirements would place on growth and adoption in the cryptocurrency space.
(2) Implications for the blockchain industry
If this guidance is enforced, users will be required to go through invasive KYC/AML processes to engage with any product that touches the blockchain, exchanges will be obliged to share in-depth information with each other regarding deposits, withdrawals, and trades, DApps running smart contract calls will have to hire third-party auditors, etc. Our industry will be forced to front compliance costs to the same magnitude of the financial system, and our core principles will be eroded in the process. If this guidance is enforced, it will effectively cripple our industry.
Although the FATF has proven itself as a positive force in impeding criminal activity in the traditional financial space, applying “copy-paste” regulation to the cryptocurrency space without taking enough time to properly understand the scope of the implications will obstruct the very innovation the world’s regulators and executives hope to foster through the use of blockchain technology. Ultimately, the application of this guidance will not achieve the FATF’s desired outcome at all.
We are at an inflection point. This is just the beginning of the long road toward effective regulation of the cryptocurrency ecosystem. At Shyft Network, we believe that working hand in hand with regulators and policy-makers is the most effective way to ensure the guardrails put around our industry are for the betterment of its users and investors without destroying the principles that make this technology so revolutionary.
Shyft Network’s advisory team and co-founders have spent the last two years advising the OECD and its 36 member and 100+ non-member nations around the world. We have spent months educating and training regulatory bodies and heads of state, as well as directly writing regulatory standards that help ensure proper rules are applied for this global paradigm shift.
We have been adamant with policy writers that protocols in the blockchain space that operate on their own consensus mechanisms are enforcing laws within their own ecosystems, and therefore are formatting rules that make up systematic regulation in the digital realm.
We believe that through collaboration, we can help individual nation states achieve their goals without fragmenting the blockchain space by requiring paradoxical regional enforcement and thus limiting the global potential of our ecosystem. This effort will require time, collaboration, coordination, and new innovations along the technology stack that must merge to ease the blow that adoption of paradigm-shifting technologies inevitably has on today’s incumbent societies and systems.
(3) A Global Paradigm Shyft
Our goal is to make things better than how they are today, not worse, and that means we need to work on both sides of the policy isle — as technologists, and as citizens.
Shyft Network was designed to be the access point for traditional institutions and frameworks to the digital and permissionless realm. It is meant to be a bridge between worlds: open and closed; old and new. The network’s focus is to allow interoperable checkpointing, financial and non-financial data validation, and attestation across any environment and acts as a side rail across any system today that requires enhanced validation and trust beyond just public and private key signatures.
Shyft Network sits one layer above based layer protocols such as Bitcoin, Ethereum, and EOS, aggregating data in order to inform, develop, and verify the unique identities of our users. We believe that the strength of Shyft is in the strength of all networks since as adoption of generalized protocols increases, Shyft Network has a larger universe of data points to inform our platform.
We built Shyft to allow regulation as a protocol to be developed in higher orders than just simply consensus. As the traditional world is made up and organized by laws, regulations, and institutions that together build and bind entities, we designed the network's layers to be able to bind those same types of rulesets into the system, so you can begin to build real-world regulatory requirements into the network, allowing for the permissionless world to use them where and when required.
The first introduction of regulatory protocol enablement is through the deployment of Shyft’s trust anchoring and KYC contracting infrastructure.
The goal is to enable the ability for federations and coalitions of participating entities to be able to both bind themselves and their users into the network, but then conditionalizing how they interact on the network, and with whom they choose to work with — who they trust.
Shyft leverages channel-based transmission architecture for assets and data controls, enabling routing between compatible services. This enables trust anchors to have many diverse abilities across the ecosystem, making them able to cross-share sensitive data requirements, jurisdictionally create data sharing procedures that can adapt based on geographical differences, maintain GDPR and privacy requirements, and all while formulating a chain of history and a publicly auditable list of history and associated data transmissions.
Putting the actual requirements into action, Shyft Network employs a cross-ecosystem, cross-protocol layer for identity and KYC information. The goal of this is to exist in a more cost-reducing and efficient manner, making it so that any trust anchor or federating coalition of parties can both consume and produce critical data that represents their users, and making it so that those assets can be transported and exchanged across all associated trust anchors and coalitions based on the federations requirements and the user’s consent.
What this starts to do is enable the real world to apply business-as-usual and conventional structures to decentralized network environments, making it so that we can begin to eliminate friction and create open data sharing via a kind of trusted data transport protocol layer across all projects, protocols, and people in the crypto space, as well as the traditional world.
The core technologies that make up the Shyft Network, when deployed across other public and private network infrastructures become the building blocks for a wide-scale solution for FATF guidance, FINCEN’s latest regulatory requirements, and likely over time, the creation of new systems that can alleviate the regulatory burdens that will be dealt with us. All this without sacrificing the decentralized ethos and core tenants that we have worked so hard to create today.
(4) Industry Call To Action
We are again at a critical point not only in the history of our ecosystem, but in the history of the world. Similar to how religion cast a shadow on the enlightenment era and it’s innovations, what we do now, and the decisions we make, will be remembered and felt long after our generations pass.
Our industry is decentralized and not driven by one leader. We are not organized in top-down structures and are not governed by elected officials. We are everywhere, and nowhere. We are from all countries, ethnicities and backgrounds, and the only thing that unites us is in our beliefs and in a set of mathematical equations in open source repositories that make up the constitutions that bind us together.
What we need now is stronger unity and a single voice that can further speak on behalf of the tremendous progress that has been made in the blockchain ecosystem in just 10 short years of existence. The next course of this battle will be whether we as a global nation, a stateless state, can come together and show all the good we create, instead of the destruction the misinformed think we manifest. We need coordination to occur immediately, for if we do not, it is likely the uneducated will regulate us out of existence.
Shyft is building a blockchain-based ecosystem that allows for the secure and private sharing of data for industries, governments, and consumers. Shyft enables individuals and organizations to prove and verify identity credentials, ownership rights, and credibility between counterparties in real time and at scale.