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The field of cryptoassets continues to expand dramatically. With more than 2,900 cryptoassets currently traded and a total market capitalization of more than $200 billion (as of October 8, 2019), crypto is about to gain wider acceptance and reach the financial mainstream. Unfortunately, public perception is full of confusing and conflicting messages about what crypto is and isn’t. Distinguishing between fact and fiction in this rapidly evolving landscape is a challenge. In this post, we debunk three popular crypto myths and aim to drive real-world adoption in a way that’s more cost-effective and responsible for everyone.

Myth #1: Crypto is the Wild West; there are no regulations

fact: The crypto industry entered the new year with an unprecedented level of regulatory milestones. From the Fifth European Anti-Money Laundering Directive (5AMLD) coming into effect on January 10th to Singapore’s Payment Services Act coming into force on January 28th, crypto regulation around the world has gone into the stratosphere with great potential to reach new borders by the end of 2020.

Back in June 2015, the Financial Action Task Force (FATF) issued a “Risk-Based Approach Guide — Virtual Currencies”. At that time, these were “only” guidelines, and the recommendations he prescribed were only “general”. While some countries, such as the US, Japan, Australia and others, have been early movers and taken proactive steps to regulate the crypto space, many countries have been slow to implement regulations or have taken no steps at all. In four short years, the FATF has come a long way with a series of actions that have increased the urgency for countries to have strong AML regulatory frameworks for cryptocurrencies. These include setting a new definition for virtual asset service providers (VASPs) and outlining measures for local regulators to adopt and more effectively monitor crypto transactions such as the controversial travel rule. The level of regulatory clarity resulting from these efforts is critical for the industry to operate with greater confidence. This has so far led to many cryptocurrencies such as Coinbase (an online platform for buying, selling and storing cryptocurrencies) choosing to set up their base in the US – the only jurisdiction that had any regulation at the time. Regulatory clarity also led to the expansion of new banking services to crypto exchanges when banks were able to establish that they were operating within a regulated jurisdiction.

To learn more about the evolution of the FATF, watch Elliptic’s free on-demand webinar, FATF Guide to Virtual Assets.

By June 2020, FATF member states should transpose the FATF Guidelines into their national regulatory frameworks, which basically means full AML regulation of cryptocurrencies globally. The depiction of cryptocurrencies as the Wild West, while valid at one time, could not be further from the truth today. Crypto companies cannot be complacent; they must take steps now to ensure they can operate in this new regulatory environment.

Myth #2: Crypto is mostly used for illegal activities

Headlines like these inevitably lead many, but especially the uninitiated, to associate crypto with crime and criminals. As with any new technology, criminals will find ways to use it to achieve their goals. And, as with anything new and undefined, people and the media are quick to make light of its criminality, sensationalize its risk, and undermine its usefulness.

Fact: According to data collected and analyzed by Elliptic over the past six years, as of 2019, only $829 million in bitcoins have been spent on the dark web1only 0.5% of all Bitcoin transactions.

Compare this to the traditional financial system, where the proceeds of crime laundered annually amount to between 2 and 5 percent of global GDP, or $1.6 to $4 billion annually!2

Although there are many reports of crime, the amount of criminal use of cryptocurrencies is disproportionately lower. More attention should be focused on its widespread legitimate use.

For an introduction to how cryptoassets are used for illegal activities, download our free Bitcoin Laundering Report.

As the industry has evolved, the insights, tools and resources to prevent illegal activity have also matured and become more available to the market. In fact, compliance teams at more than 100 crypto companies and banks today have successfully used these tools to better understand different crime methodologies, identify risk to their institutions, protect themselves, and stay compliant. It’s unfortunate that such advances are not reported as much as the crimes committed in crypto, so it’s important to look beyond the headlines and recognize that crypto services can be provided safely – and that crime is only a small part of the story.

Myth #3- Crypto is a black box, we have no visibility into what’s going on

Fact: Unlike traditional finance, most blockchain-based assets are highly transparent and traceable.

While blockchain provides a high degree of privacy – in that the identities of those making the transactions are encrypted, so you don’t know who is behind a particular transaction – crypto transactions are inherently public and transparent and can be traced by anyone in real life. time. You can literally “follow the money” through a public blockchain.

If we look at a basic visualization of the bitcoin blockchain, it looks like a jumble of addresses and wallets.

Have you seen the Bitcoin Big Bang, Elliptic’s visualization of how we track bitcoin transactions? Do your research interactive tool and learn its significance.

At Elliptic, we take this data and look for patterns of addresses that appear to be owned by a single entity, be it an individual or a service, and apply what is known as “clustering”. Through a combination of machine learning and manual data scraping, we gather information that allows us to connect these clusters to real entities. This forms the core of what we do to ensure our clients have visibility into transactions related to Bitcoin money laundering, counter-terrorism financing or any other financial crime, and to better understand whether their exchanges are receiving funds from illicit sources.

Calling cryptocurrency a black box may be the biggest myth preventing us from finding success in this new industry. The cryptoeconomy, more than traditional finance, allows businesses, banks and individuals the transparency to manage their risk exposure and their compliance obligations. In fact, crypto makes us more accountable and improves our ability to create a truly open financial system that is safe and reliable for everyone.

Now that we have shown that cryptocurrency is a highly regulated industry, far from a black box and not used mainly for illegal activities, we invite you to continue learning, spotting myths and debunking misinformation. Explore our website for further insights and subscribe to our blog below.

1. https://info.elliptic.co/whitepaper-fdd-bitcoin-laundering

2. https://www.imf.org/external/pubs/ft/fandd/2018/12/imf-anti-money-laundering-and-economic-stability-straight.htm

3. Elliptic has identified 13 broad categories of illicit behavior and 25 different typologies across a wide range of platforms, including transparent and privacy coins, exchanges, ATMs, peer-to-peer platforms, prepaid cards, ICOs, DEXs and mixers. Contact us to find out more.

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crypto & nft lover

John DoeCoin

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