KYC and AML are necessary elements of today’s macro economy and are important components of the crypto space to drive adoption. As digital assets become more accepted and prevalent globally, criminals are finding more sophisticated ways to launder money.
Having said that, AML has become as well more sophisticated, especially in the Decentralize Finance (DeFi) space where illicit activities have declined with advanced technology mapping risk profiles on wallet addresses and transactions based on on-chain analytics.
KYC and AML tools can now correlate IP addresses with digital wallet addresses, and clustering algorithms do a precise job at identifying associated addresses. Such measures would be difficult, even for state-level actors, to launder through exchanges outside their borders.
Evolution of AML, KYC and Technological Advancements
Startup trading platforms that decide to integrate AML tools have the option to apply for a virtual asset service provider (VASP) and securities licenses. “Becoming compliant means a huge pool of opportunities becomes open to you. Funding in this space is only available to those focusing on compliance.” As a result, AML solution providers find themselves bridging the gap between the crypto world and the compliant financial system.
“Regulations will drive mass adoption, but it’s incumbent on the players in this space to proactively put forward the framework for regulation that encourages innovation while disincentivizing illicit activity. There is a need to strike a balance where one can monitor money laundering while maintaining a user’s privacy. These are not mutually exclusive goals; you can have both.”
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