On top of the list of the features or advantages that made cryptocurrency really take off are the privacy and anonymity benefits that its users enjoy. Most people have come to view the anonymity that blockchain offers as synonymous with digital privacy.
Would you believe that there is a new piece of technology that could spell the end of anonymity in cryptocurrency without compromising the privacy it offers?
Coinfirm, a global leader in analytics and AML for blockchain and cryptocurrencies, is leading the new tech development after having just raised over $4 million to build it. The software is designed to help crypto exchanges meet the new legal regulations that are meant to curb money-laundering using cryptocurrencies and digital assets.
The FATF Regulations of 2019
According to Pawel Kuskowski, the CEO of Coinfirm, his company developed the software with the primary objective to help crypto exchanges comply with the ‘wire transfer rule,’ also known as ‘The Travel Rule’ issued by the Financial Action Task Force back in June 2019. The Financial Action Task Force (FATF) is a large international agency tasked with setting the standards for anti-money laundering regulations around the globe.
In the new regulations targeting virtual assets and related providers such as cryptocurrency exchanges, countries are expected to implement a comprehensive framework of measures meant to combat terrorist financing and money laundering. These include providing essential information about the originator and beneficiary in every digital asset or cryptocurrency transfer.
Other pieces of information that must be provided are the sender’s physical address and identification as well as the date and place of birth. In the new rules, exchanges are also expected to capture the name and account numbers of the recipient.
Anonymity vs. Privacy
While privacy and anonymity are two very different concepts, the FATF regulation has put many cryptocurrency exchanges in a difficult position. This is because they are now required to collect and disclose customer information, something that definitely does not bode well with cryptocurrency users and tends to undermine blockchain’s greatest feature: anonymity.
This requirement has also brought to the fore the need to differentiate between anonymity and privacy as far as digital payments go. Anonymity refers to a situation where a person does not wish to hide what they are doing or what they own, all they try to conceal is their identity. Privacy, on the other hand, is the power to keep various personal things to oneself, regardless of how it impacts society.
According to Kuskowski, if you use cryptocurrency, you need to get used to the idea that the age of anonymity is gone. With the new ‘Travel Rule’ regulation issued by FATF, your favorite exchange will be required to tie your crypto address to your real-world identity. The software that Coinfirm is developing is focused on helping exchanges keep private their users’ information despite the problems anti-anonymity rules seem to cause.
How Coinfirm’s crypto privacy tool works
The new technology that Coinfirm is working on to help crypto exchanges comply with FATF’s new regulations is focused on the customer’s privacy rather than the exchange’s ability to provide it. The software lets virtual asset service providers (VASPs) such as crypto exchanges share only the necessary customer information securely with other VASPs. It also generates detailed security reports that can be used to determine how risky it would be for one VASP to trade with another VASP with customer privacy in focus.
The service is all-rounded. It not only makes it possible for VASPs to trade securely, but it also makes it possible and safer for exchanges to transfer funds to non-VASP establishments and recipients such as anonymous digital wallets.
The FATF Travel Rule requirements may seem to prevent VASPs from transacting with non-VASPs that are not subject to the new rules, but Coinfirm’s secure platform has a solution to this problem. Once the new regulations are in effect, it may be riskier for exchanges to trade with non-VASPs, but the new system is built to make it easy for exchanges to send and receive digital assets to non-compliant users while remaining compliant.
Is this the future of privacy in the crypto world?
It is no secret that blockchain’s top feature – anonymity – was the technology’s most marketed feature that turned out to be a double-edged sword that could cause almost as much harm as its benefits. Criminals – mostly traders in illegal products and services and money launderers – have had a field day thanks to the anonymity and peer-to-peer transaction capability offered by blockchain digital assets. FATF’s regulations have come at the right time just as global governments are grappling with how to deal with the surge in financial crimes brought about by the new digital currency.
Coinfirm’s CEO Kuskowski, is himself experienced in this field, having headed the anti-money laundering department of the Royal Bank of Scotland. He says that the future of financial privacy should be defined solely by how an individual or a business can keep snooping eyes out of their details, and not try to hide it from the system altogether. His company’s technology, if adopted by crypto exchanges, is more of a regulatory compliance system that aims to keep the exchanges in business while helping them protect their customers’ data.
Coinfirm is an established blockchain services company that already works with top exchanges, including Binance and even corporate investigations firm Kroll. They are best placed to provide a solution to the privacy and anonymity issue that exchanges have to explain to their customers because of the expertise it has in the industry and the influence it has on the global financial market.
Regulation is inevitable
Many people mistakenly believed that it is completely impossible to regulate the digital assets market, especially considering how governments and banks have tried and failed to kill blockchain products. Ultimately, they have had to embrace it. This new regulation is not just necessary; it is good for both the privacy of the users and the crypto economy into which the world is headed, according to Kuskowski.
“Coinfirm is focused on providing a solution to a glaring problem with no current solution. Our Solution will be available for the wider market, and not just specially developed for exchanges. Coinfirm is going to kill the market,” he said.
The future of privacy in the digital world will depend on how well the market will receive solutions such as the one developed by Coinfirm. While there is a risk that the new regulations will challenge crypto companies in every industry, it is likely to drag traffic off low-quality exchanges.
Kukowski and Coinfirm are very optimistic about the prospects and capability of their new tool. If they get it right, there is a high chance that the company will pioneer the next phase of cryptocurrency adoption with the new regulations. Exchanges that are compliant with the new regulations will be operating on the level of banks, and Coinfirm will be at the center of helping them manage their user data.
“Exchanges will soon be going head to head against banks, the financial field will be leveled,” Kuskowski said, “we will have the best seats in the house to see which financial industry is more effective as far as technology, costs, and user privacy goes. I believe that crypto and crypto exchanges will win hands down!”