Cryptocurrency – a Global Phenomenon or a Threat?

Cryptocurrency acclaimed global fame with its unique operational structure that offers convenient and low-fee fund transfers around the globe. With billions of dollars in investments and revenues, the fraud rate is also high due to the lack of regulation of this sector. This scenario has facilitated money laundering and terrorist financing. In order to fully utilize the growth potential of cryptocurrency, the businesses need to pay heed to the latest crypto AML regimes. AML compliance software is considered a feasible solution for frictionless compliance and sustainable growth. 

Cryptocurrency acclaimed global fame among investors and consumers within a decade of its foundation. In 2009, “Bitcoin” – the first cryptocurrency was created which now has a market capitalization of $64 billion (as of January 2019). As per Statista’s report, the global blockchain technology market in 2018 was $1.2 billion and Coinbase, a pure play cryptocurrency exchange has 5.6 billion users worldwide. 

There is also the dark side of this unmatched success. Fraudsters and cybercriminals fully utilized the regulatory loophole in the cryptocurrency sector. Bitcoin.com news revealed that $3.6 billion worth of cryptocurrencies have been stolen in the first two months of 2018. Many cryptocurrency exchanges and wallet providers are using online ID verification and AML compliance software to address such fraud threats and to gain sustainable growth. 

Cryptocurrency has its own pros and cons. It has value as well as risk for businesses and consumers. It attracts businesses and consumers to fulfill their money transfer needs. Below is an in-depth analysis of the pros and cons of cryptocurrency, its future insights and global regimes that might shape the future of cryptocurrency. 

Benefits of Cryptocurrency 

Cryptocurrency is a digital currency developed with the intention to fill the gap in international funds transfer that fiat currency is unable to cover. Below are the few benefits or key features of cryptocurrency that back its tremendous fame.

Quick money transfer

One major reason behind cryptocurrency’s fame is the short time span that it offers to its consumers for fund transfer. It delivers money around the globe within a few minutes, and that also without the hassle of visiting any physical cryptocurrency bank. 

Low fund transfer fee

Cryptocurrency offers quick fund transfer with a low fee. As cryptocurrency is not regulated in most of the regions of the world there are no taxes and duties on intercountry crypto fund transfer. Also, the fee that it charges is minimal, so people prefer cryptocurrency over fiat. People that send funds back home use cryptocurrency to avoid any tax deductions.

New growth ventures for merchants

Merchants that live in high-risk countries are utilizing it to conduct business with other countries. As fiat transfer is a very lengthy process and often banks do not cater to the customers from high-risk countries until and unless an intermediary is involved to guarantee the payment from those clients. 

Global AML Regimes and cryptocurrencies

Global frauds and scams in cryptocurrency are increasing. Money laundering and terrorist financing are facilitated using the loopholes in the regulatory framework of cryptocurrencies. In order to eliminate money laundering and other monetary crimes, regulatory authorities are expanding the span of Anti Money Laundering (AML) regimes to regulate cryptocurrencies along with fiat currencies. Below are a few recent changes in global AML regimes regarding cryptocurrencies.

FINMA issued banking certificates to cryptocurrency banks

FINMA – a Swiss regulatory authority gave banking certificated to two pureplay cryptocurrency banks. The cryptocurrency banks will have to follow strict AML and customer due diligence rules to prevent money laundering. The regulated, as well as unregulated crypto wallets, will be liable for AML compliance. This new venture of FINMA is expected to improve the credibility of cryptocurrencies in the future. 

Amendments in Canada’s AML regimes

Canadian government amended the regulations of Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTFA). The new regulations will add virtual currency businesses and wallets into Reporting Entities. The virtual currency businesses and Money Services Businesses (MSBs) will be entitled to practice due diligence, recording and reporting regulations as per the international standards of FATF (Financial Action Task Force). 

FINTRAC (Financial Transactions and Report Analysis Center) will implement the new AML regulations. 

Cryptocurrency Usage in Different Regions

Cryptocurrency has made a global impact but its acceptance and growth vary in different regions of the world. An expert roundup on its acceptance and future in the African fintech ecosystem highlighted that cryptocurrencies will improve the growth of fintech in Africa as the regulatory environment is suitable. Africa is ahead of many developed countries when it comes to P2P finance. Also, the fintech sector is flourishing due to low transfer fees and tax-free fast transfers that cryptocurrency offers. 

Statista also highlighted in its 2019 report that Turkey, Brazil, and Colombia are top three countries where cryptocurrency usage is very common. Developed countries like the USA also have a huge consumer base for cryptocurrency, 17% of users from North America use cryptocurrency.  

These research highlights show that cryptocurrency is not limited to developed countries and it promises equal benefits for developed as well as under-developed economies. 

The silver lining of cryptocurrency

Cryptocurrency uses blockchain to transfer funds quickly while keeping a track of transfers. But using a topnotch technology does not guarantee a fraud-free sector. Hiding one’s identity is very easy while making cryptocurrency transfers. Many crypto exchanges do not run identity verification on their clients while their clients are from every corner of the world. So willingly or unwillingly they serve high-risk clients and criminals. 

Money Laundering is commonly conducted through online transfers of cryptocurrency or through fiat to crypto exchange and vice versa. A series of fund transfers are conducted on cryptocurrency exchanges to hide the money trail. Also, cryptocurrencies are used to buy goods off the black web. 

How Cryptocurrency Can Prevent Fraud?

Common frauds in cryptocurrency exchanges are, money laundering and terrorist financing conducted hiding behind the stolen or fake identities. Cryptocurrency exchanges, wallets, and payment facilitators are major targets of criminals. Now that the regulatory authorities are tightening the reins on money launderers in the cryptocurrency sector, the businesses in this sector need to exercise due diligence on their clients to improve their credibility. 

Real-time identity verification is a feasible solution for crypto businesses to exercise AML compliance. The clients are verified online within a minute before onboarding them, so it eliminates the risk of catering to money launderers. Many credible businesses around the globe offer these services with good pricing models. These AML solutions are cost-effective for startups and businesses. 

Everything comes with its own pros and cons, so does cryptocurrency. Businesses should focus on the growth opportunities that it offers and use fraud prevention solutions to stay one step ahead of fraudsters. 

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