THE DARK SIDE OF CRYPTO

The technology which is the backbone of crypto- assets including and not limited to blockchain is a very fascinating improvement that could revolutionize areas beyond the financial world. For instance, it could promote financial inclusion by offering affordable payment options to those without bank accounts, thereby empowering millions of people in low-income nations.

The potential advantages have prompted some central banks to consider the idea of launching their own digital currencies. However, before moving forward, it’s wise to take a step back and consider the risks that accompany these opportunities.

The very same features that make crypto-assets or what others often refer as cryptocurrency appealing is also what makes them risky. These digital assets are made in a decentralized manner that operate without central bank oversight. As a result, they offer a degree of anonymity in transactions, similar to the use of cash. This anonymity in crypto-assets creates a potential avenue for money laundering and terrorist financing.

In July 2017, U.S led global authorities dismantled AlphaBay, the largest illicit online marketplace at the time. For more than two years, AlphaBay facilitated the worldwide sale of illegal substances, hacking equipment, firearms and toxic chemicals. Before its shutdown, crypto-assets were used to move over 1 billion US dollars.

However, the threat extends beyond money laundering and financing terrorism. Another concern is the risk of financial stability. The rapid growth of crypto-assets, combined with their highly volatile market prices and uncertain links to the traditional financial sector, could expose the global economy to new vulnerabilities.

Henceforth there is a need to develop regulatory frameworks to cater for evolving challenges. Fortunately, various international bodies are already taking action.

The Financial Stability Board ( FSB) is exploring potential new regulations to keep pace with developments in financial technology. On the other hand, the Financial Action Task Force ( FATF) which sets global anti-money laundering and counter-terrorism financing standards, has issued helpful guidance to nations on managing crypto and other digital assets.

Nonetheless, more work is needed to fully confront the rising threats posed by crypto-assets and to ensure global financial stability. So, where do we begin?

A good starting point is to implement policies that uphold financial integrity and safeguard consumers in the crtypto world.  The very technologies that enable crypto-assets can also be used to regulate them.

We can use innovation to counter the risks that innovation creates ( fighting fire with fire). Regulatory and supervisory technologies can play a vital role in keeping criminal activity out of the crypto ecosystem. More encouragingly, some countries now require crypto-assets exchanges to comply with Know-Your-Customer ( KYC) regulations. These changes might take years to be fully refined and ready for implementation. Here is a potential of this approach over the long run.

 Technologies like Biometrics, Artificial Intelligence and cryptography can significantly boost digital security and enhance the detection of suspicious activities instantly. This gives law enforcement agencies a very key advantage in quickly intercepting unlawful transactions. Such tools can play a key role in cleaning up the crypto ecosystem. Additionally, it’s essential to guarantee that consumer protection standards are constantly applied across both digital and traditional financial transactions.

The every now and then price changes of cryptocurrencies have brought up a heated debate  whether they are a bubble, a passing thread or the future of the financial  world that will eventually replace the traditional currency.

By nations working together we can unlock the potential of crypto-assets while making sure they don’t threaten financial stability.