Identity verification protocols are not synonymous with increased security. This topic topped the discussion in LaBitConf about the vulnerability of privacy by supervision.
Ripple CEO Brad Garlinghouse shared his opinion on the relevance of executing KYC-AML protocols in cryptocurrencies so that they can integrate into the global financial system; he claims that “a reasonable oversight is crucial if we want cryptocurrencies to be the infrastructure of the next-generation financial system.”
Garlinghouse started a thread on Twitter to extend his opinion on identity identification protocols and their relevance to achieving a robust financial system:
‘Consumer protection has to be part of that. I am not against privacy, I am against bad actors who take advantage of anonymous transactions. I have said many, many times before: KYC / AML are important protocols that aim to help cryptocurrencies to move from the margins to a more integral spot, and then become an essential part of our global financial system »Garlinghouse adds in the third tweet of the same thread.
KYC or “Know your consumer” has the specific objective of consolidating the identity of users by its verification system, also storing their information, and keeping track of transactions; basically supervision of the authors of such transaction and what are their activities.
It is a fact that this protocol limits the access of malicious actors in the traditional financial system, although, at the same time, it compromises user privacy thanks to a centralization of the information at a single point of failure.
This vulnerability leads to the emergence of p2p platforms in which no centralized entity manages other people’s credentials or money. Such is the case of the decentralized exchange houses, Bisq, and HodlHodl.
KYC protocols generate a lot of aversed opinions in the cryptocurrency community for the different values and principles that are actually in the table regarding supervision policies, protocols, and integral security.
Garlinghouse’s opinion, being representative of one of the heavyweights of cryptocurrencies, does not go unnoticed and maintains the debate that nurtures those involved from different perspectives.
In a recent report, the discussion in the LaBitConf forum also pointed out how these protocols violate the privacy of users. Nathan Wilcox, Chief Engineer of the Electric Coin Company, comments on the forum “While regulators may have the best intention of protecting users when they require information about their transactions from service providers, keeping that information centralized introduces an additional vulnerability “.
What is AML (ANTI-MONEY LAUNDERING), and how does it work?
AML is an acronym for the term Anti-Money Laundering. It is used to revolve around the financial, legal, and compliance sectors to develop the standard controls that companies and organizations execute to avoid, identify, and report any suspicious behaviors regarding money laundering.
Anti-Money Laundering, AML compliance focuses on performing procedures that discourage and prevent potential violators from engaging in money laundering, and many other fraudulent movements or crimes. Thanks to this protocol, criminals lose de ability to hide the illicit origin of money in any transaction of doubtful nature.
Practices and requirements in the AML establish compliance regulations on money laundering prevention, not only helping businesses to avoid involvement in any possible frauds and crimes but also highlighting and improving their assessment, optimizing and automating their processes.
By: Jenson Nuñez.
