Crypto adoption has no future without regulation and law enforcement

The basis of any exchange of value is trust. The more two parties trust each other, the more they will feel confident engaging in transactions. Not just engaging in a high volume of transactions, but higher value transactions, too.

Bitcoin (BTC) and other cryptocurrencies are certainly accomplishing a lot when it comes to creating a decentralized environment where the ability to trust another party is taken out of the equation by a blockchain. Hardcore enthusiasts who already understand this are the ones most willing to reach into their coffers and pour money into the crypto revolution. The truth is, though, that the average consumer still isn’t at that point yet.

Some libertarians probably don’t want to hear this, but in order for the crypto world to reach critical mass, it needs much broader adoption, and the average consumer is going to need another layer of protection in place. They need a set of rules and somebody to complain when things go awry.

There are levels to this

Blockchain technology certainly does an amazing job of allowing participants to exchange value in a trustless environment. If you don’t share your private keys, nobody can steal your value. Teaching this to newly minted crypto holders is fundamental to getting them to buy in.

While many view that next step as a hindrance to adoption, regulation in the crypto space will most certainly accelerate it. The more layers we add to the safety net for consumers, the more confident new investors and adopters will be in getting involved.

Rules let freedom reign

The Bank Secrecy Act took effect in the 1970s and stands as the first piece of significant legislation in the United States surrounding Anti-Money Laundering and terrorist financing. It essentially forces banks to cooperate with the U.S. government in fighting financial crime. Following the terrorist attacks on the World Trade Center in September of 2001, the Patriot Act was born, further opening up the lines of communication between banks and governments in the same vein.

Fast-forward to 2019, an international governing body called the Financial Action Task Force extends the travel rule to include not just banks but virtual assets and exchanges. The rule stipulates that virtual asset service providers must share the identities of users trading assets worth $1,000 or more.

Tracking and providing that information sounds pretty straightforward, and it should be that way. But it also means virtual asset service providers need to fulfill all kinds of other tasks in order to become compliant, including:

Establishing what a typical crypto transaction looks like so that they can spot abnormal patterns signifying potential criminal activity.
Screening customer wallets regularly.
Sharing a list of potentially blacklisted customers with other virtual asset providers and authorities.
Sharing Know Your Customer information with virtual asset providers and authorities.

The inherent challenges with the FATF travel rule are certainly very real ones. For one, it requires buy-in from many virtual asset providers running blockchain projects and exchanges using different technologies. This makes tracking customer information at a granular level more difficult. That said, the benefit of the travel rule will outweigh those challenges. It stretches beyond the typical KYC procedures most crypto service providers follow. KYC relates mostly to an organization’s internal processes. The travel rule is much broader in nature. It pushes both virtual asset providers and governments to be transparent. It aims to go beyond the idea of individual nations subscribing to their own rules surrounding crypto.