According to Finance Magnates, on June 21, 2019, the Financial Action Task Force (FATF), which is an international financial regulator, has released a public statement with recommendations for Virtual Asset Service Providers (VASPs), such as crypto exchanges and wallets. The final goal of the new regulations is to be able to control the money flow and to connect the exchange accounts and wallets to people in the real world.
It has to be noted that even though the 37 FATF member countries, including China, US and Germany, are not obliged to implement these recommendations. However, if they do not, they can be put on FATF graylist, or, in the worst-case scenario, a blacklist, preventing other countries from doing business with them.
Collecting private information
VASPs will be forced to collect and share with one another a certain amount of the sensitive private information about their users. A similar system is already being used by banks worldwide – the so-called “travel rule”.
Here is the complete list of information VASPs will be forced to provide:
- Originator’s name – the name of transaction sender
- Originator’s account number – for example, the sender’s wallet address
- Originator’s physical (geographical) address, or national identity number, or customer identification number that uniquely identifies the originator to the ordering institution, or date and place of birth
- Beneficiary’s name – the name of transaction receiver
- Beneficiary account number – for example, the receiver’s wallet address
As it can be seen, the implementation of these requirements would completely eliminate blockchain anonymity.
Is it even technically possible?
Because cryptocurrencies were designed to be anonymous in the first place, with transactions themselves made as small as possible to ensure the energy efficiency and high speed of the whole P2P network, it would be hard to practically implement a system that would connect every wallet and every transaction to a certain set of persons.
Chainalysis COO Jonathan Levin and global head of policy Jesse Spiro highlighted this issue in a letter to the FATF sent earlier in 2019:
“Virtual Assets are designed to provide a way to move value without the need to identify the participants in a transaction.”
Both experts also expressed concern that such radical measures could lead to people migrating to decentralized exchanges, such as Waves DEX and 0x-based exchanges.