by Jake Wengroff
Regulation and crypto seem to be strange bedfellows. Some crypto enthusiasts welcome more government oversight, as this could mean broader protections and a way to usher in a new group of investors to the asset class. However, the very concept of crypto and DeFi (decentralized finance) means the elimination of intermediaries, regulation and traditional banks.
Government Crypto Regulation
President Joe Biden signed an executive order on March 9, 2022 calling on the federal government to examine the risks and benefits of cryptocurrencies. While the measure will focus on several areas, two to note center on consumer/investor protection and preventing illicit activity.
This is, without doubt, the centerpiece of the need for more crypto regulation. While the Wild West of crypto and digital currencies has brought untold fortunes to many, it has also created an environment for untold fraud.
According to data from blockchain analytics firm Chainalysis, scammers made off with a record $14 billion in cryptocurrency in 2021. Losses from crypto-related crime rose 79% from a year earlier, driven by a spike in theft and scams. Chainalysis notes that DeFi platforms, in which there is no middleman but rather a piece of code, are largely to blame for this fraud.
“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike,” Chainalysis wrote in its annual Crypto Crime report.
Unlike accounts at banks or securities firms that carry protections in the form of FDIC and other federally-mandated measures, crypto assets held in wallets or traded on exchanges do not carry the same protections. And once criminals obtain the private key, they become the rightful owner of the crypto assets and the former owner is at a loss. Indeed, broader consumer protections for crypto, digital currencies, NFTs and transactions performed on DeFi platforms are in order.
Halting Illegal Activity
Further to the discussion of consumer protection against fraud is the need to halt illegal activity, such as money laundering, drug and human trafficking and terrorist financing. The anonymity of Bitcoin and other cryptocurrencies — in addition to the lack of a need to confirm identities or perform background checks — facilitates transactions with individuals and groups with dubious interests.
According to Rise to Peace, drug traffickers and terrorists buy small amounts of cryptocurrencies such as bitcoins online in order to obscure the origin of the money, thereby allowing them to pay collaborators in other parts of the world. As for money-laundering figures, it has been estimated that $25 billion per year is laundered in Mexico alone.
Greater transparency measures are needed for cryptocurrency transactions, perhaps resembling the traditional Know Your Client or Anti-Money Laundering protocols to which banks must currently adhere.
Added Protection for Your Crypto Assets
Accessing and transferring crypto between different wallets, platforms and exchanges can be risky. While it’s difficult for the blockchain or ledger to be hacked, the platforms on which crypto transactions take place can be subject to a breach. Once a cybercriminal obtains crypto’s private key, that criminal becomes the rightful owner.
The industry needs market-driven solutions that can keep up with the ever-complex marketplace of crypto assets. TransitNet is creating the industry’s first third-party title registry that demonstrates proof of ownership of crypto assets, to add a layer of protection for investors in digital currencies and other crypto assets.
Join the forefront of the new crypto infrastructure. Request an exclusive registration for TransitNet’s title registry when it launches today.
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, he covers such topics as security, mobility, e-commerce and the Internet of Things.