KYC, AML and Bitcoin
by Helga Danova | Jul 20, 2014 | Crypto News
While a good number of Bitcoin exchanges have popped up in different spots around the world over the past few years, the reality is that certain jurisdictions are making things harder on Bitcoin entrepreneurs than others. Any exchange is going to have to operate within the legal guidelines of their local country if they wish to operate without fear of being shut down, but one of the main problems with that rule of thumb is that the legal landscape is still being put together when it comes to Bitcoin. The one thing that most governments know they wish to stop right now is money laundering. Although it will definitely be a difficult task to get a legal handle on Bitcoin over the long term, regulators can still have a bit of control when it comes to the entry points and exit points of the Bitcoin ecosystem.
What are KYC and AML?
KYC (Know Your Customer) and AML (Anti Money Laundering) regulations are used to make sure that people are not allowed to move around money in an anonymous manner. These are the same regulations applied to banks and other types of financial institutions, and it would be crazy to think that these laws and guidelines would not also apply to Bitcoin businesses. The main point of these laws is to collect information on customers to make sure that they aren’t moving around large sums of money without any checks or balances. Law enforcement often follows the money when it comes to solving various forms of crime, so these regulations are used to make sure that terrorists, drug dealers, and other types of criminals are not able to fund their activities behind closed doors. On the other hand, it’s also important to point out that these laws basically ensure that there is no such thing as financial privacy. The government has the right to know the details related to all of your accounts and past transactions.
How Do These Regulations Affect Bitcoin?
While these regulations don’t really affect anything at the protocol level, they have definitely had a huge impact on exchanges and other Bitcoin businesses. Whenever you’re going from fiat currency to bitcoins, you’re going to have to hand some information over to the exchange. As a rule, the information comes in a form of verifying person’s identity and providing scans of government-issued IDs, proof of residency etc. Not collecting various forms of identification on customers who are depositing large sums of money can actually be considered a crime, as we saw in the case of Charlie Shrem and BitInstant. These regulations have definitely stalled development of different kinds of Bitcoin companies, especially in the United States where businesses are required to gain a money transmitter license in every state where they wish to do business.
What is the Long Term Picture?
In the long run, KYC and AML laws could be made obsolete by Bitcoin. If this technology and payment system becomes as large as the Internet, then it would become quite difficult to track the accounts and transaction histories of everyone in the world. While this could be a breath of fresh air for privacy advocates, it has the potential to make things harder on law enforcement when it comes to tracking the funding of various criminal organizations across the world. If we live in a world where people are using bitcoins as a currency rather than dollars, euros, or any other fiat option, then we’ll also be living in a world of provably secure financial privacy for everyone. It’s hard to collect customer information when the business is nothing more than a protocol.
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