As cryptocurrencies continue to go mainstream, with El Salvador trying to switch to a Bitcoin-based economy and central banks launching pilot tests for CBDCs, the question of how regulated crypto should be remains.
Adoption, though, has still been fairly slow, but there are reasons for optimism. An estimated 46 million Americans today own cryptocurrency, and that is a number that cannot be ignored.
However, as more people enter the crypto space as owners, the question of how safe the space is remains open. In the early days, cryptocurrencies were touted as safe and anonymous.
Later, it transpired that crypto was vulnerable. Just this week, Liquid Global, a big cryptocurrency exchange based in Japan, suffered an attack that left it $80m short in assets.
Anonymity on the other hand may sound good to users, but as governments step in, anyone buying, selling or holding crypto is required to comply with KYC and AML procedures.
Most recently, Binance announced that it would drop its “free ownership” model, whereby the exchange required no information from users, and replace it with a tiered KYC and AML system.
The arrival of tighter regulation is not necessarily a bad thing and it can prevent much of the troubles crypto users face now.
KYC and AML Will Help with International Regulation
Binance may have stood its ground and avoided KYC and AML regulations until now, but international pressure has made the exchange more compliant.
Binance's user base is vast but mass adoption has been historically hindered by the lack of proper regulatory framework.
With regulators asking exchanges to step up their KYC and AML game, they are essentially paving the way for these companies to operate in many jurisdictions, and do so legitimately.
Customers who know that regulators oblige exchanges to carry out checks feel more confident, and they can still benefit from the inherent benefits of cryptocurrencies, such as transactional power, quicker payments and constantly-improving value.
KYC and AML checks will make it much easier for authorities as well as private companies to track down criminals and prevent some scams from happening. The crypto world is filled with promises of fast riches, which more often than not, prove to be pyramid schemes.
Introducing more scrutiny on all levels of crypto is not designed for consumers to relinquish control or lose their autonomy, but rather for companies and governments to be able to react in cases when actual harmful events occur.
Without KYC and AML Crypto Won't Be Adopted
Crypto has been carried on the will of the people. However, mass adoption will be constantly hindered by fears, uncertainty over the regulatory status and pushback from central governments and regulators who have a point that a framework must regulate crypto in some way.
For this to happen, we will have to see more AML and KYC regulation carved into law. Once that framework is available, mass adoption of crypto can start with investors no longer having to worry about regulatory bickering and unknowns.