Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.
In the relentless cat-and-mouse game between regulators and cryptocurrency developers, the cats are about to add some serious firepower – this time in the form of a global alliance.
But if you think the intergovernmental Financial Action Task Force’s forthcoming know-your-customer (KYC) compliance standards spell the end for the mice, think again. If anything, the FATF’s move, expected to be released next month, will drive developers to accelerate work on non-custodial exchanges and other tools that will make it easier for end-users to transact directly outside of regulated intermediaries.
As CoinDesk managing editor Marc Hochstein explained last week , the new rules are likely to require exchanges and other custodial entities that take custody of their customers’ cryptocurrency to obtain identifying information about both parties before allowing a transaction over their platforms.
Functioning much like the FATF’s “travel rule” for correspondent banks, the new regulatory approach would be backed by the task force member institutions’ unique powers to “graylist”– and ultimately blacklist – entire countries if they are judged to be non-compliant.
When combined with the European Union’s forthcoming AMLD5 anti-money laundering rules for cryptocurrencies, the new framework conjures up the image of an all-encompassing global system for cryptocurrency transactions in which no one user is unaccounted for.
‘Satoshi’s vision’ destroyed?
Libertarian-minded cryptocurrency believers will view this as an abominable surveillance system that contravenes the censorship-resistant principles upon which bitcoin was built.
From a practical perspective, the new rules are going to be a burdensome imposition on custody-handling exchanges.