The tug of war between the novel blockchain industry and the regulators on how the former can operate in a legal way is going to face its first test when the intergovernmental organization of 39 member states meets later this month to review if the Virtual Asset Providers (VASPS) have enforced the controversial “travel rule.”
According to the detailed recommendations outlined by FATF, all VASPs are to collect detailed user information for the senders and the receivers of a transaction, in an attempt to discourage the malicious actors from using the services for nefarious purposes. The privacy-centric digital coins like Monero(XMR), Dash (DASH) & Zcash(ZEC) became the immediate casualty as some of the VASPs took the easy way out and started delisting these coins.
Blockchain analysis company Chainalysis has been at the front and center of the recent compliance measures — with the adoption of their advanced AML and blockchain analytics platform by different VASPs which include Crypto exchanges, blockchain networks and digital custody services. The company itself has been adding cryptocurrencies to its platform to monitor transactions and Anti Money Laundering (AML) compliance.
In the most recent move which raised a few eyebrows, Chainalysis announced that it had added two popular privacy coins, Zcash and Dash, to their transaction monitoring and compliance platform. It went in detail to describe the privacy features of both the coins and how it would monitor them.
While Dash was completely discarded by Chainalysis for having privacy features no better than Bitcoin itself, it acknowledged Zcash for its better privacy protocol. However, it goes on to suggest that since privacy features are opt-in only on these networks and not employed automatically — the percentage of completely private transactions is really low — 0.9% in the case of Zcash.
With the FATF deadline approaching fast, VASPs are scrambling to integrate their platforms with AML compliance procedures provided by companies like Chainalysis & Coinfirm. Recently, institutional digital-asset security specialist Fireblocks announced that it would be adding Chainalysis’s Know Your Transaction (KYT) software suite to its platform to monitor crypto transactions within its platform — strengthening security standards & AML compliance.
In a couple of other significant moves, two leading blockchain projects — Algorand and Tezos have teamed up with Chainalysis and Coinfirm, respectively to integrate regulatory compliance into their blockchain ecosystems. For Algorand, Chainalysis will provide its Know-Your-Transaction (KYT) solution — allowing its foundation to monitor large volumes of on-chain activity for the native ALGO token and report any suspicious transactions to the authorities.
Tezos' partnership with Coinfirm is much more broad-based enabling its foundation and commercial entities such as exchanges to monitor activity on the protocol. Actually, it goes beyond a partnership — allowing Coinfirm’s AML Platform to be available for Tezos and XTZ transactions. Confirm had also signed a deal with Ripple last summer to tag transactions on the XRP LEDGER that may have been laundered through mixer services.
Another key player in the Crypto intelligence arena, CipherTrace rolled out a solution, allowing wallet services and exchanges to securely share information about their customers to comply with the Travel Rule.
Despite being met with skepticism and trepidation, when the travel rule was first unveiled — fearing the compliance burden would lead to an end for user privacy and decentralization, VASPs have come around by adopting and embracing the new regulatory landscape.
Regulators should meet the novel industry in the middle ground by not stifling the innovation. As for the VASPs, the message is clear… they are here to stay.
Originally Published on Medium
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