Bitcoin and other cryptocurrency’s promise of anonymity is overstated, despite popular belief.
Bitcoin and other cryptocurrencies were designed to be used in cashless transactions that are immune to government regulation.
The goal of cryptocurrencies is to replace centralized authorities like banks and governments with decentralized ones: algorithms.
This is the goal it helps achieve and one reason why cryptocurrencies may eventually take off.
To What Extent Do Cryptocurrencies Allow Users To Remain Anonymous?
There has been much discussion about the benefits of using bitcoin and other cryptocurrencies due to their relative anonymity.
One such benefit is that bitcoin and cryptocurrency transactions are typically much more visible than bank transactions due to the lack of privacy rules protecting bitcoin holders.
Anyone can easily monitor your blockchain transactions. Blockchain addresses are associated with a unique identifier, making it simple to trace transactions as they travel from one address to another and back again.
Any time fiat currency leaves or enters a crypto wallet, it goes through the regulated financial system, helped along by crypto exchanges that are required to comply with regulatory requirements, making it simple to map the ID to a specific person.
Therefore, law enforcement agencies are able to identify criminals who attempt to use bitcoins to conceal their money flow; however, they are not always able to apprehend these criminals because they may reside in countries that encourage malware attacks.
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AML and KYC
Financial authorities have been slow to recognize cryptocurrencies as a legitimate financial instrument, but regulators now have the responsibility of ensuring that cryptocurrencies adhere to the goals of authorities’ regulations and are not perceived as a threat.
Most cryptocurrency exchanges are required by financial regulators to follow regulations including know your customer (KYC), anti-money laundering (AML), and terrorist financing prevention and sanctions.
All trustworthy cryptocurrency exchanges currently work closely with authorities.
Do Regulators Sometimes Make Contradictory Decisions?
It’s ironic that cryptocurrency regulators are now concerned with safeguarding financial system users.
As long as the risk is disclosed and the entity selling the service is regulated, they are concerned with preventing catastrophic financial crises that may come from the crypto market without worrying if users take on high risks, i.e., they have significant crypto exposures with very negative net present value investments.
This appears to be a systemic outlier. Although the crypto market is transparent and relatively small in comparison to the global financial plan, it does not pose a serious threat to the economy as a whole.
Given that crypto assets are the same size as they were five years ago.
Although the price of cryptocurrencies has risen and fallen significantly since then, there is no reason to believe that they are now a greater cause for concern.
Potential cryptocurrency investors do not appear especially likely to be excited by a future rapid rise in prices.
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Excessive Regulation Could Collapse Cryptocurrency
Cryptos appear to be becoming more a part of the mainstream financial system as authorities tighten the regulatory framework.
However, this is likely to separate it from its ideological foundations and weaken them, as cryptocurrencies exist today to replace the power of banks and governments over monetary transactions with algorithmic control.
Cryptocurrency activists could be stoked if the technology fails to achieve its stated goal of providing a secure financial transaction system that operates independently of central authority.
Over-regulation of the crypto market by the authority would stifle innovation and make it impossible to incorporate blockchain technology’s benefits into the financial system.
However, actions by regulators to drive crypto into an endless effort to regulate the market when it doesn’t need it will lead to limiting the use of crypto and, eventually, cause it to collapse because crypto architecture solves many regulatory problems.
As a result, the financial sector will not reap the full benefits of blockchain. Indeed, we should all be worried about this.
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