The crypto legal crackdown is coming, are you ready?

There’s no denying that cryptocurrencies are increasingly coming to the mainstream. Even otherwise tech unsavvy people have heard about them, and are even considering investing in them. Yet widespread adoption of cryptocurrency will not, and cannot happen until we resolve the KYC issue, or in plain English being able to identify people’s identities. 

However, there is a glaring and missing piece in the crypto scene that dominates the regular markets - institutional investors. Large financial institutions are sorely lacking from the space, especially as they represent 75% of investors in the stock market. But this has happened for one simple reason: they’re terrified of legal risk.

Sure, you’ll find the odd banker who took a wild gamble. But by and large, they’re holding the line. The thing is contrary to what your crazy uncle might have told you at the Christmas party, Bitcoin isn’t exactly anonymous. Given that it tracks every single transaction that a coin has been a part of, it is effectively marked and you could theoretically track it back to specific people.

Now, imagine that a coin was used as part of a terrorist ransom payment, or used by countries that are embargoed. For all practical purposes, those coins become tainted, as using them might be construed as aiding and abetting criminals. And this scares financial institutions, as they could be fined extremely high fees if they fail to comply with financial regulations. 

Until financial institutions can be reasonably certain that there are several degrees of separation between them and criminal activities, they will not enter this space. Some crypto-fanatics might think this is a good thing, but look at it from another perspective - until financial institutions decide to dip their toes in, we’re the unregulated Wild West, and lawmakers will want to make an example out of our community.

As such, widespread institutional acceptance could be a shield against the regulatory crackdown that is coming. To that end, some of the more responsible crypto-projects, like the CRD Network, have begun to take proactive steps.

The CRD Network is in the process of creating an environment in which people and organizations can verify their identities, and the network will mark them as someone who’s trustworthy. As its first step, CRD has launched a KYC app which will allow you to verify your identity in compliant environment, be able to get the source of funds report which you can present to your bank, and other features. The plan is then to collect enough of these trustworthy users in one decentralized space, so as to be able to create a safe ecosystem.

From the banks’ perspective, this will look like “herd immunity zones” where they could begin establishing themselves without major compliance risk. On the other hand, users within such vetted ecosystems will fall under the umbrella protection of major financial institutions.

After all, these major financial institutions have friends in high places, they spend millions of dollars to lobby the governments of the world with favourable regulation. By aligning your and their interest, you gain incredibly powerful allies that will defend you - not because they particularly care about you, but because they care about their return on investment. 

As the old saying goes “the enemy of my enemy is my friend,” if you want to survive the coming legal crackdown it’s time to get allies before the battle starts. On the other hand, if you decide to not go down this route, you might just accidentally end up as collateral damage in the battle of the titans between regulators and financial institutions.