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Cryptocurrencies evolved to provide financial freedom and an alternative to centralization. The goal was to be decentralized, private, and liberating. The evolution was rapid, but it collided with global regulations intended to protect investors’ interests. Apparently, two terms are being debated: no-KYC and the travel rule. They both take opposite approaches to compliance and privacy. Let us understand both.
Compliance with the regulation requires institutions to be transparent in order to protect investors’ interests. This implies that concealing users’ identities and privacy is out of the question.
Therefore, according to the travel rule, certain transactions must take place through a centralized system to avoid any ponzi activity. On the contrary, a no-KYC platform ensures that the user’s anonymity is maintained.
Altogether, if the preference is entirely on safeguarding the personal information, no-kyc platforms are best suited.
Traditionally, financial institutions welcomed people with government-issued identification, proof of address, and other personal information. The goal was to prevent any further scams or illegal activities. All no-KYC platforms do the exact opposite of this. They do not require any personal information, only an email address, to ensure smooth operations. The no-kyc platforms offer:
People who use no-KYC see it as more than just a platform for concealing their identities. It grants users the freedom to transact. It also allows for the establishment of businesses in areas where censorship and financial surveillance are strictly enforced.
The Financial Action Task Force (FATF) enforced the ‘travel rule.’ It states:
While funds are transferred (including virtual/digital assets) between financial institutions, a certain number of centralized transactions must occur.
It must specify the account number, name, and other personal information.
As per the article by Amina group (a Swiss licensed bank), the rule has been handpicked in the crypto world as national law by many countries, such as the UK, the European Union, South Korea, and others.
The travel rule applies to VASP (Virtual Asset Service Providers), which includes exchanges, wallets, and others. The thought behind applying the travel rule is to battle money laundering and financial terrorism.
For the crypto investors across the globe, the travel rule is now their obvious expectation. Most of the countries have already adopted the travel rule as national law, and the rest are following their lead. In the coming years, investors can expect:
Despite the merits, there are risks of a data breach. Moreover, critics have indicated that enforcing the travel rule mandate will push many users towards unregulated platforms.
Globally, regulations for digital assets are getting stringent, yet there is a demand of no-kyc platforms. There are multiple exchanges, custodial-model platforms, P2P protocols, and many others fulfilling the demands of no-kyc. However, many countries have started keeping tabs on virtual currencies as well, which meand anonymous or not, taxes are implied.
Users opting for no-kyc platforms miss out on the following:
Despite the surge in crypto regulations, the privacy of the user can still be maintained.
Assets should be stored in non-custodial wallets while the private keys remain with the user. Transferring funds from one non-custodial wallet to another also does not require the fulfilment of travel rules.
There are numerous tools available worldwide to help you maintain your privacy. Before committing, conduct research and select the appropriate tool.
There are numerous loopholes in the laws that could help keep data private. For example, the EU has a threshold limit, and if the transactions fall within that threshold, the travel rule does not apply.
Many protocols are encrypted and generate identity badges. This complies with regulations while preserving the user’s anonymity. Zero-knowledge protocols are an excellent example of such protocols.
As technology advances, more additions to the travel rule will be made to tighten the regulation of digital assets. The goal is to create a bulletproof global financial landscape that is resistant to financial terrorism. Overall, the concept of anonymity will lose its value even in the crypto world.
However, there may be some advancements that will safeguard user information and prevent data breaches. This means that privacy will be protected through the use of technology while remaining compliant with regulations. The future holds a subtle balance between privacy and regulation.
The expansion of regulation around the world indicates user commitment to cryptocurrency adoption. There is a sense of transparency and alertness to prevent illegal activity. While demanding global financial freedom, the domain raises awareness about KYC/AML.
The new user is not shying away or hiding, but rather openly demanding strict non-data breach policies. Adoption of travel rules is high due to the use of new technologies that ensure privacy.
Users are currently confused about privacy and regulations, but this will change in the coming years. Privacy and regulations will coexist peacefully.
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