Why the last barrier to crypto’s mass adoption is good regulation


    It's no secret that blockchain-based systems are rapidly becoming a part of our everyday lives, not just in a peer-to-stealthy-peer, underground-darkwebs way, but also on a systemic level.

    This list by Forbes titled "Blockchain 50: Billion Dollar Babies" illustrates the world's biggest companies like Google, Facebook, JP Morgan Chase, Amazon, and others all working on their own blockchain projects today.

    Thanks to the genius of an unnamed coder(s?) known as Satoshi Nakamoto, who created the Bitcoin code, parts of this system were used to fuel thousands of cryptocurrencies, companies, and projects today, none of which would have happened without Bitcoin. Talk about creating your own business!

    In fact, very recently was Bitcoin's 12th birthday, a round date that brought about equally round figures for its "CEO" (currently missing in action for over a decade) and early pioneers: bitcoin the token rose in price from tenth of a penny to $15400 apiece, in 12 years it has never been hacked, and now its creator's code is getting implemented all over the world. Not bad for a 12-year-old. But if these are just baby steps, what happens next?

    Why are companies becoming more and more interested in blockchain?

    This example of HSBC completing the world's first paperwork-free deal using Corda R3 blockchain is one no-nonsense illustration of what IBM.com calls "significant business benefits, including greater transparency, enhanced security, improved traceability, increased efficiency and speed of transactions, and reduced costs".

    Transactions that take minutes, not days, fees smaller by several orders of magnitude, ability to provide complete proofs and auditable logs for anyone to see, are just a small snapshot of what blockchain can offer the world's companies today. And this is why in this rapidly developing sphere, the demand for people is desperate.

    With over 140 000 000 users in Bitcoin alone according to Bitcoin expert Andreas Antonopoulos, this industry is increasing its sphere of influence at a staggering pace. But for that it needs people – and for people to take crypto seriously, and to trust this industry, there needs to be safety and security in the niche.

    In response, more countries across the globe are beginning to introduce crypto regulations. But what does this mean exactly, and how is it likely to affect FinCrime and Compliance recruitment?

    Are there regulations already in place?

    Governments all over the world are already putting in dramatic efforts to make crypto safe everywhere. This industry is a lot safer than in the early days thanks to law and order (for instance, putting a stop to Silk Road made this sector a lot more secure; improving security mechanisms around Initial Coin Offerings and introducing Initial Exchange Offerings allowed for greater safety of public funds).

    In the UK, just a few days ago (at time of publishing), Chancellor Rishi Sunak announced that the government is researching CBDCs as an alternative to cash, and that the Treasury is drafting proposals to regulate private stablecoins. This is a strong indication that the government believes digital currencies can transform financial services, and follows on from three other recent notable moves by the UK regulators in terms of crypto regulation:

    • From 10th January 2020 any UK businesses carrying on cryptocurrency activity will have to register with the FCA and have until 10th January 2021 to do so, otherwise they must cease trading.
    • The government are currently analysing responses to their consultation around bringing certain crypto assets into the scope of financial promotions regulations, with the purpose of "enhancing consumer protection while continuing to promote responsible innovation."
    • Last Month, the FCA announced that the sales, marketing and distribution of crypto derivatives to retail consumers will be banned in the UK, arguing that the ban provides an appropriate level of protection to retail consumers, who are at a high risk of suffering losses from trading crypto-derivatives

    Across the world, not only is crypto being affected by the classical banking structures, classical banking structures are employing crypto. Just one example of this happened very recently, when the Reserve Bank of Australia announced that it is planning a proof of concept (PoC) for a wholesale central bank digital currency (CBDC) based on distributed ledger technology (DLT), or more specifically, Ethereum blockchain technology.

    "We are aiming to explore the implications of CBDC for efficiency, risk management and innovation in wholesale financial market transactions."

    Michelle Bullock, Reserve Bank Assistant Governor

    As government interest in CBDCs is increasing, crypto exchanges are also undergoing structural updates in accordance with emerging regulation requirements both from the outside and the inside:

    • In many countries around the world crypto exchanges are required to have a license to operate.
    • In terms of internal regulation, here's one illustration of having good controls in place: compare a crypto exchange today that makes sure it has a reserve fund to compensate users in case of a hack, and an exchange in the early days of Bitcoin like MT Gox, who didn't have any regulatory framework at all.

    A certain balance has to be reached, of course, between users having security and privacy (this example of Coinbase users' indignation about exposure of their private data illustrates the importance of maintaining data integrity). But surely a way out could be put together that would protect users from fraud as much as possible and at the same time allowed them to keep their data their own?

    With technologies like zero-knowledge proofs that enable users to confirm authenticity without giving up private data, there seems little doubt that enhanced regulations will be implemented soon.

     Crypto blog re size

    If blockchain is such a tempting prospect why hasn't the government already fully regulated Crypto?

    As many more global companies around the world use Bitcoin and blockchain to vastly improve their businesses, millions more users are joining the network. Since the beginning of the emergence of blockchain technology, governments have introduced regulation to try to minimize the risk of crimes, which were rampant pretty much from the beginning, giving Bitcoin a bad name from the get-go.

    Just as dollars can be and are used to sponsor crimes, so can crypto, thanks to the fact that many, if not all, of its features are much more advanced than those of the fiat financial systems. Meanwhile, no-one is banning the USD on those grounds, and it logically follows that crypto shouldn't be seen only as the tools of drug lords and terrorists in just the same way.

    Instead, introducing clear and meaningful regulation will put an end to lawlessness and fear associated with crypto for many users (take, for example, 80%+ of ICOs turning out to be scams) and could very well mean the beginning of rapid global adoption for crypto.

    Governments are becoming much more accepting of crypto. This is evident when comparing in how many countries crypto was legal 5 years ago and now. In fact, all developed and affluent countries are now allowing crypto in one form or another, and comparatively there aren't many left who don't.

    What's left to do?

    As more and more governments study and understand Blockchain and its benefits, the crypto eco-system and its main players, it's becoming obvious that the only thing standing behind crypto's indescribable potential for good and a much more fair, simple, and noble world are clear regulations.

    Ultimately, it is very likely that cryptocurrencies will become increasingly mainstream in the near future, and this increases both the potential for crime, and the need for regulations across the globe; so it follows that FinCrime and Compliance professionals will see openings for more crypto regulation-specific careers in the future.

    Chancellor Rishi Sunak said on Monday:

    "We are starting a new chapter in the history of financial services and renewing the UK's position as the world's pre-eminent financial center. [...] Our plans will ensure the UK moves forward as an open, attractive and well-regulated market."

    At Twenty84, we are already starting to see an increase in regulatory roles in the Crypto and Digital Assets space. An example of some of the roles that we have seen so far include:

    • Head of Risk and Compliance (Crypto)
    • Crypto AML Officer
    • Crypto Compliance Analyst
    • Regulatory Crypto Markets Expert

    Twenty84 recently partnered with CryptoUK

    CryptoUK is the UK's self-regulatory trade association representing the crypto asset sector. Since their launch in 2018, they have been raising awareness of the need for a supportive regulatory framework for crypto assets in the UK.

    At Twenty84 we are increasing our focus on Crypto/Digital Assets regulatory hiring and growing our experience in the sector, so this partnership helps us to understand the skill gaps and requirements in this fast-moving industry, which means we can offer a knowledgeable service to our Crypto and Blockchain clients.

    We are excited about the potential to offer plenty of interesting new careers and opportunities to our Financial Crime and Compliance network!

    Is this something you would be interested in?

    Get in touch to find out about the digital assets / crypto regulation roles we have available, or to discuss the regulatory skills requirements in your Crypto / Blockchain business.

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