The ramifications of using blockchain and supporting crypto-currencies within financial organizations

By Kayvan Alikhani , CEO, Compliance.ai

The Blockchain engineering and its many programs are transforming the monetary program. A blockchain is a decentralized, electronic and transparent accounting book of all transactions. Virtual currencies, like the infamous bitcoin, make use of this distributed accounting know-how and work on a peer-to-peer basis through a community of computers, therefore, create it in a decentralized manner. In addition, this procedure instantly notifies each individual transaction through an extensive network of media, which makes it practically incorruptible.

Why is blockchain meaningful?

With each individual transaction registered in a community of collaborating desktops, the unique documents of almost all transactions can not be modified retroactively, since it is not reasonable that there should be an alteration of all subsequent blocks and that collusion of the network should arise. . Therefore, blockchain-based units are considerably more innovative than existing transaction history preservation processes, which depend on the comparatively vulnerable siled-ledger tactic, thus creating blockchain a powerful new method for economic units to choose edge .

Accounting books focused on blockchain are transparent and electronic, reduce fraud, lower transaction fees, retain transactional integrity and simplify non-refusal. From the system, the blockchain applications are not limited to the monetary sector but offer powerful and convincing use scenarios for the business.

How is blockchain used?

There are a multitude of blockchain applications in a variety of industries in this article are a series of:

• Crypto-coins : Bitcoin, BlackCoin, Sprint ( complete checklist here )

• Smart contracts : Invoices that are paid when the shipments arrive,

• The certificates of shares : Distribute dividends to owners if profits reach a threshold,

• Payment devices : Help the electronic transfer of cash without problems and safely,

• Dispose of the requirements for TSP ( have confidence in the companies of the company ), and thus promote non-repudiation,

• Reduce monetary disputes providing a transparent transaction book,

• Reduce opportunity and tax fraud minimizing the variety of entry and exit points,

• Automate Business processes , this type of: incorporation of small businesses, tax collection and transportation management,

• Cloud Storage : Distributed storage, such as Storj and Sia,

• Online voting : Decentralized in the net voting, such as Tezos,

• Insurance : Peer-to-peer, parametric and microinsurance,

• Sharing economy : Perfect and immediate point-to-point collaboration,

• Health data : Greater secure interoperability of individual information,

• Authenticity : Verification of the origin of digital art (and electronic products under normal conditions),

• IO : Promote the perfect point-to-point collaboration between IoT units (World wide web of Factors).

Despite the fact that there has been substantial volatility in secure cryptocurrencies (such as Bitcoin), blockchain's technological innovation is not an incineration of air or exaggeration. Its impact on the electronic planet is substantial and will continue to infiltrate a variety of industries. Even for cryptocurrencies, the large selection of exchanges and the volume of daily transactions that are processed do not show any deceleration.

We are also seeing a regular increase in the development of work and the spending of funds in companies linked to blockchain and crypto-currency.

Means: End users of Blockchain Wallet

Retail and fiscal adoption

Some major merchants, both nationally and internationally, have already begun accepting cryptocurrencies as a type of payment at the time of payment. Some of these the stores involve : Overstock, Expedia, Shopify, Microsoft and DISH Community. Internationally, Ulmart, the largest Internet retailer in Russia, has been committed to the acceptance of cryptocurrency.

• Financial institutions and identity management organizations have quickly explored the implementation of blockchain engineering in applications for identity verification and to defend against anti-tax-laundering tactics.

• The global remittance remittance community, SWIFT, recently tested DLT (scattered accounting engineering) to simplify intercontinental transactions and mentioned that the results were incredibly good. "The launch of SWIFT on the now published report on the task of the lender-financial entity indicates that the PoC (strategy test) was intended to determine how a combination of DLT and SWIFT belongings could meet the governance, protection and information of the industrial stage privacy requirements, as well as show advantages for its use over other applications. "

• Banking companies could reduce cross-border payments and expenses related to securities investment and regulatory compliance by $ 15 to 20 billion for each year of 2022 (as described in a technical document by Santander Innoventures and Oliver Wyman and Anthemis Group) .

• Within the R3 consortium, the participating financial institutions of 15 are evaluating if blockchain can be applied to change the regular rating of the letters of credit .

• Citigroup not long ago They presented that they are trying to use the service of experts from the industry with experience in bitcoins to support their AML (anti-money laundering) method. "Several companies grant this bitcoin certification, along with the Cryptocurrency certification consortium , which delivers a BPC to these who add a two-year course of study and a 20-minute test. "

Regulatory landscape, blockchain and privacy

Blockchain and crypto-currency have generated a healthy discussion about whether the anonymous nature of transactions can make money laundering much easier or more difficult. Some of the early adopters of bitcoin have been synonymous with criminals who generate deals in the current black market, applying the network to eliminate the dirty money of the guides in virtual currency impossible to track, which could be accessed more quickly in many nations of the world. However, there is a fear that criminals will take advantage of blockchain-centric networks, but the simple and positive applications of using blockchain to fight against money laundering have gained popularity among banking institutions. This strategy applies a secure and electronic identity management overlay on blockchain-based cryptocurrencies to deliver a traceable digital path (in sharp contrast to the current well-loved and untraceable fiduciary paper trail) as an accredited way of tracking records. .

In the context of know-your-client (KYC) and id monitoring, the similar is true. The most recent realistic implementations refute previous notions that cryptocurrencyes constantly anonymize people's identities, and in the method they avoid tracking the identities of prisons. Many now are seeing Blockchain as a chance to take advantage of the community to make improvements to a money institution's ability to securely and privately recognize people and meet KYC's needs. The adoption of digital wallets by suppliers will create a new barrier for consumers who do not accept to confirm their accounts. Some new Business they are making identity verification remedies centered in blockchain that allow people to authorize the use of their identities in real time.

FinCEN (Financial crime compliance network) printed address on the "Application of FinCEN policies to people who manage, exchange or apply digital currencies", which defines the convertible virtual currency as any virtual currency or "means of exchange" that may have an equivalent price in real currency or act as a substitute for the real coin. The Banking Secrecy Act (BSA), which regulates financial institutions with numerous subcategories, gives regulators the ability to create new or much more secure subcategories and definitions, as FinCEN does.

The BSA focuses on the "activities" that people and / or companies execute such as banking, transfer of resources, etc., and not always in what "technologies" they are employed to perform those actions. Most of these actions are described in relation to the exchange, storage or, in general, with the "currency". Having said that, "currency" as described by the BSA is "the income of currency and paper of the United States or any other country". Therefore, no cryptodynamic action, such as bitcoin, would be in good shape within this definition of "currency" as a means.

The subcategory "money issuer" of "financial institution" has a broader definition that extends to the transmission of cash that implies "money or another value that replaces the currency". The recently described convertible digital currency belongs to that group. Instead of creating a newly controlled exercise or a regulation focused on technological knowledge, FinCEN basically clarified why routines executed using bitcoin or any other currency substitute can conform to the current definition of "money transmitters". This falls within the even broader classification of "money services business" (MSB) and, conversely, it is one of several subcategories of "financial institution". Given that from this activity of nesting word definitions in the FinCEN address, a small virtual-forex company could be classified as a "money transmitter".

The board also defines the categories of persons of 3: administrators, exchangers and end users, and points out why only directors and exchangers qualify as "money transmitters" and consequently must comply with the BSA. Under the rules of FinCEN: an exchanger that accepts and transmits a convertible cryptocurrency or buys or sells convertible cryptographic currencies is a transmitter of funds. The definition does not include individuals who acquire or advertise cryptocurrencies as a particular investment decision or for other uses of their own. "Accept and transmit" suggests that you take cryptocurrencies from a single buyer and send them to another person or persons in your name. You have to do both, take and transmit, so if you are just accepting cryptocurrencies from someone or just sending cryptocurrencies to an individual (perhaps in exchange for an excellent service), then you are not a transmitter of funds. You are a money transmitter if you are an exchanger that buys and sells (such as a brokerage or exchange assistance for buyers). If you qualify as an exchanger, the organization must register with FinCEN as an MSB, have a plan known as your client and anti-money laundering (AML) and submit suspicious exercise studies (SAR).

The current increase in KYC specifications for owners of new and current cryptocurrency wallets at the international level indicates that this type of standardization could be very important to ensure the proper functioning of the cryptocurrency market, as it approaches sovereign recognition. The blockchain protocol could be revised to restrict transactions to wallets with KYC verification only. All transactions can be traced back to an identified electronic wallet. In addition, the mechanisms for examining the possibility of AML, information and production of reports could be integrated into the cryptoprocedures, instead of monitoring only the input and output factors.

The privacy laws, precisely GDPR (Regulation of security of the general details), are in disagreement with the important rules of blockchain, specifically the security of "right to be forgotten" granted by GDPR. This could seriously affect the survival of cryptographic currencies in Europe. The "right to be forgotten" allows people to request the long-term removal of their data from the solutions they use. The immutability of Blockchain (a vital component of the protocol) helps prevent this type of movement from taking over the area. GDPR also requires organizations to get rid of any knowledge of historical person if that person is no longer their buyer, however, once again, they contradict blockchain. The tug of war between the blockchain advocates and the defenders of GDPR is a continuous struggle , and there are ongoing initiatives to reconcile the two.

conclusion

The regulatory landscape encompassing cryptocurrencies is slowly and gradually adapting to the growing desire. In parallel, the blockchain protocol may well have to change quickly to allow electronic wallets verifiable by KYC. On the one hand, we see a lot of uncertainty from regulators close to virtual currencies, so it is justifiably even now the Wild Wild West. On the other hand, it would seem that the rewards to the current specific rules are clear and could be transformative, particularly with respect to the needs of BSA. Therefore, it is important to pay attention to changes on both sides, and be educated about the regulatory prerequisites that may well be implemented for today's people and businesses.

The blockchain role and the cryptocurrencies (as a blockchain software person) enjoy in the financial sector is barely in its infancy. While recent laws driven by privacy, such as GDPR, are in disagreement with blockchain rules, regulation will gradually adapt to the current in constant transformation and the reputation of blockchain.

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