Article by Forbes: Luke Fitzpatrick
In what seems to be an unrelenting nightmare, the cryptocurrency world is once again about to face another blow to its reputation. A recent study by the Middle East Media Research Institute (MEMRI) reveals that terrorist groups are using bitcoin and crypto assets to finance their activities.
This comes at a time when the Financial Action Task Force (FATF) has issued new guidelines for its member countries on how to handle cryptocurrencies. What does this really mean for the blockchain community?
Crypto privacy is under attack
Data privacy and censorship resistance provide advantages for unscrupulous dealings. When cryptocurrencies are used wrongly, they can be used as a means to evade government oversight. As a consequence, crypto privacy has become under attack.
A report by MEMRI says that “Cryptocurrency has come to terrorism with an array of terrorist organizations exploiting the anonymity afforded by blockchain technology for fundraising and finances.” What has come to light? Some Jihad leaders are supporting the use of cryptocurrencies and encrypted messaging services like Telegram. As a consequence, the bounds of anonymity online are under heavy scrutiny by government authorities.
According to Justin Tabb, the CEO of Amplify, “Too much focus on anonymity’s negative usage on any platform can run the risk of restricting privacy for all users. In other words, a healthy degree of anonymity is required to ensure freedom for all.” This is why it is important to think of anonymity in a nuanced and situated manner rather than treating all users of a platform as a terrorist.
A strong push for crypto regulation
In 2017, the US government called upon the Department of Homeland Security to study how terrorists are using bitcoin. Similarly, the UK government increased regulatory requirements for digital currencies to curb digital anonymous crimes. How is this impacting anonymity?
The Financial Action Task Force (FATF), founded in 1989 as an initiative to combat money laundering, developed a new set of guidelines that will impact cryptocurrencies and the financing of terrorism.
With the FAFT’s new guidelines, crypto-related companies like Fidelity, Kraken, and Coinbase will have to collect more information from customers. Apart from the standard KYC, CFT, and AML, companies will also need to collect data about the recipient of the funds. Whilst this may not seem like a major change, it most certainly is, and these new sets of regulations will pose a major threat to cryptocurrencies.
In response to the matter, Ted Foxworth, the President of CryptoRocket believes that the FATF’s requirements will likely fail. Foxworth says that the “Old rules that govern new technologies like blockchain technology are often misunderstood. Ultimately, if the FATF is looking to collect personal transactional data. Then, the FATF should carefully consider technological solutions that will be invented which will bypass what the FATF is essentially trying to achieve.”
There is no denying that FATF’s additional regulations will push up the compliance costs of crypto-related exchanges. Stringent privacy regulations will leave most crypto exchanges losing customers as more people will prefer to trade and transact directly and anonymously.
These regulations will drive more people to realize the value of anonymity. Furthermore, as data increasingly becomes the currency of the future, regulators will have to come up with better solutions to fight terrorism without restricting our freedom to privacy.