Blog Post by: Amie Parnaby
Amie Parnaby is a professional writer and her experience spans a broad range of industries, from I.T. to training and optics to banking. Currently, Amie is the content writer for Terrexa – your entry point for crypto.
One of the pillars of the original blockchain project was its anonymity – making and receiving bitcoin without your personal information floating around in cyber-space.
Now, of course, we know that some details can be traced through transactions and wallets addresses, making it pseudo-anonymous or Pseudonymous.
Prohibition without understanding
Lawmakers and regulatory bodies are still struggling to keep up with the lightning speed at which the crypto industry has developed and taken hold within financial circles, and then migrated to other sectors. In many cases, there has been something of a blanket approach to the inherent instability of the new industry and organisations such as the EBA in Europe prohibiting all member banks from holding or transacting in cryptocurrencies.
The blanket approach was a knee-jerk reaction to the unknown and a protective measure in a time when the world was still suffering the effects of the global financial crisis. Any major financial institution investing in a high-risk, untested and fledgeling financial instrument would have been acting naively and would have been publicly lambasted.
As a consequence of these over-reaching and all-encompassing prohibitions, banks are wary of, and in some cases outright hostile, toward the crypto space.
Banks were, and still are, the subject of much mistrust after the globally felt problems caused by high-risk investment practices and poor risk-management processes. Now regulations surrounding the banking and financial industry are much more stringent, with significant emphasis placed on the protection of the client.
Cryptocurrency business is too volatile for banks to risk their hard-recovered credibility, so any openly crypto-focused business will struggle to acquire a business account for their daily functioning.
While increased usage and adoption of cryptocurrency as a medium of payment is crawling along at a slow (but reasonably consistent) pace, it’s not at a point where a business can pay salaries, rent, taxes etc. with the crypto in its digital wallet. Crypto business still needs fiat currency.
The wheels of progress turn slowly, but they are turning
It’s not such a bad thing to use caution when dealing with significant changes in fiscal management. However, some banks and institutions are opening their doors to the future of financial innovation, in the realisation that prevarication may mean that they get left behind. That is not to say that caution is being thrown to the four winds. While there are more banks that are willing to allow crypto business access to business accounts, there are rules. And they are stringently enforced.
The financial industries have long been on good terms with procedures such as Know Your Customer/Client (KYC), Anti Money Laundering (AML) and Counter-Terrorism Funding (CTF), their attribution to the crypto space chips away at that pillar of Anonymity, that was so appealing in the bad days of the Silk Road.
Banks are placing a lot of the onus of maintaining strict KYC, AML and CTF measures on their clients as a condition of their banking access.
Is it really such a bad thing?
For the average layperson who wants to adopt the future of cryptocurrency, no, it’s not such a bad thing. One of the initial concepts behind Bitcoin was that it would allow the everyday ‘Joe’ to take back his personal wealth and financial freedom, without the behind-the-scenes manipulation of governments and central banks, but we also need to be accountable for that personal economic freedom. Trying to be anonymous while doing so is somewhat paradoxical.
With the stability of economies resting on the decisions that financial institutions and regulators make, can we really blame them for being cautious in the face of the unknown? If the only way to get the broader economic hierarchy into the crypto space, to learn how it works and how to regulate it, is to give up my pseudo-anonymity, then I’m in.