Bitcoin is designed to always be compliant with the law, and we are getting closer to this reality as the illegitimate operations in the digital currency space will need to adhere or will cease to operate.
Dr. Craig S. Wright has been very vocal about heeding this warning to digital currency services and has recently issued another warning in his interview with Ryan X. Charles on the new series “The Theory of Bitcoin – Episode 2”:
From the 7:30 mark, Dr. Wright explains how provisions for digital currency services in Europe will be restricted even further with the introduction of AMLD5.
Dr. Wright had some choice words for corrupt and illegal exchanges like Binance, who continue to mislead their users by claiming that abiding by the law doesn’t apply to them because they don’t handle fiat. According to Dr. Wright:
“Firstly, transfer and exchanges between legal tender and digital currencies. Secondly, custodial wallets. Any one running a custodial wallet service of any kind is covered. That means if you receive one cent of Bitcoin into a custodial wallet every 10 years, under European provision you have to have KYC provisions. There is no such thing as an exchange that does not have custodial services as they maintain keys.”
What is AMLD5?
AMLD5 is the Fifth Anti-Money Laundering Directive which treats exchanges and wallet services like financial institutions. It requires them to perform customer due diligence and adhere to AML/CTF (Anti-Money Laundering and Counter-Terrorism Financing) rules set by the Financial Action Task Force (FATF).
Article 1 Amendments to Directive (EU) 2015/849 – 2(d)19 states the following: “‘custodian wallet provider’ means an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.”
What does this mean for digital currency services?
As all exchanges require deposit of tokens into the exchange account, this facilitates the necessity of a custodian wallet provision service and hence links the necessity of implementing AMLD5 provisions into every digital currency exchange service.
Identity provisions in AMLD5 require the registration of identities—Know Your Customer (KYC)—for all wallets that contain at least €150 per year in them. This includes non-fiat converting digital currency exchanges (i.e. digital currency to digital currency) who will be required to adhere to the AML/CTF legislation. In simple terms, there will be no more anonymous trading.
The AMLD5 provisions will also be covered in custodial wallets. All exchanges require custodial services. No exchange is outside of the controls of these provisions, including Binance, whose activities will be criminalized.
The coverage will indirectly extend towards traditional non-custodial wallets as the entire ecosystem will need to interact with one another, so it would be logical to capture this information when other interacting services will already operate under the law.
When will all this come into effect?
Exchanges and wallet providers will have 18 months before the changes will become mandatory. The provisions in AMLD5 require the registration of identities for all wallets over €150 in capacity by January 2022.
There are existing open frameworks like EIDAS (Electronic Identification and Trust Services Regulation) to help facilitate electronic signatures. EIDAS allows any electronic signature to be used as evidence in Europe.
Not only does the original Bitcoin (BSV) comply with this framework, but nChain, who is solely invested in the benefit of growing and scaling the BSV ecosystem, has already lodged patents on certain technologies that will work in compliance with this framework, some of which have already been granted.
What will the future of the digital currency industry look like?
De-anonymization to adhere with current regulatory frameworks that today’s financial institutions need to abide with does not mean Bitcoin will not be private. In many ways, the way Bitcoin is designed will allow it to be even more private between users than the current system. The directive even states:
“The inclusion of providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, as a large part of the virtual currency environment will remain anonymous because users can also transact without such providers. To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency.”
As stated, the key objective is for Financial Intelligence Units (FIUs) to know the amount owned by all of the large address holders as well as their exchange values.
In addition, all wallet providers will need to be able to implement recovery processes for their customer’s funds or they will face the consequences.
Speculative and illegal exchanges who do not adhere to the KYC obligations will no longer be allowed to operate.
in 18 months there will be no annoymous trading allowed. BSV is designed for this world, all speculative existing exchanges will die and be replaced by tokenized everything on BSV exchanges like Bayesian is building. https://t.co/DtoHOMHzun
— Calvin Ayre (@CalvinAyre) June 30, 2020
Roy Bernhard, CEO and Chief Visionary of The Bayesian Group, shared his thoughts on the future of exchanges:
“The true value of Digital Assets have long been obfuscated by the anonymity allowed for by many of the current stewards of the various cryptographic technologies. AMLD5 takes a strong step forward in creating registration requirements for certain activities related to virtual currencies and bringing into scope key players and activities in the digital asset ecosystem that will further push the undesirables out and allow leading government and institutional groups a reliable environment with which to operate. At The Bayesian Group, we are developing the next generation of a Digital Asset Marketplace and Tokenization Platform on BSV that will allow for built-in AML/CTF functionality, including StableCoins, Securities, and other forms of Digital Assets and Resources (DARs) that intelligently, seamlessly, and instantly meet leading directives such as MLD5.”
This will legitimize Bitcoin, and delegitimize scams
Bitcoin was always designed to be an open, public, and distributed ledger.
Being proactive with the legitimization of Bitcoin is needed for it to professionalize and attain real world adoption from governments, enterprises, and regular users who safely want to use the power of the Bitcoin network without the ambiguity of its legal standing which only serves to keep it amongst small hobbyists and illegal operators.
None of these regulatory requirements are discriminatory from the scrutiny that traditional financial services are faced with today; however, we can all agree that Bitcoin by design is already a more honest, transparent, and sound version of money.
Adhering to the regulatory framework will only bring forth much needed closure for many looking to adopt and build without the worry of uncertainty.
Those that continue to be in denial or against compliance with law are the ones that are doing the world a disservice by preventing Bitcoin to be brought to the masses and realize its full potential.
Soon though, they will not have much of a choice if they want to continue to remain relevant.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.