In an effort to prevent financial transgressions, the European Union now requires cryptocurrency exchanges to apply know-your-customer (KYC) policies, similar to that required by traditional banks in a move beneficial to the legitimacy of cryptocurrency trading.

Crypto crime prevention

The anonymity surrounding cryptocurrency trading is viewed by many as an enabler of fraudulent activities, money laundering, and terrorist financing. As reported by Reuters, increasing the transparency required by exchange platforms is valuable in countering any negative perceptions around the usage of cryptocurrencies.

With all investors in the industry now required to provide proof of identity when joining exchange platforms in the EU, this will make it significantly easier for law enforcement to trace any cryptocurrency users involved with illicit activities. It also increases the difficulty for potential hackers to access online wallets or exchanges.

The regulation from EU legislators should not be interpreted as a condemnation of cryptocurrencies; on the contrary, it is a move to legitimize and regulate the market for the benefit of investors, and the economy.

Not all those in the crypto sphere are a fan of KYC barriers though, as it goes against the concept of anonymity, the philosophical foundation behind blockchain technology. With incognito transactions being conducted, however, there always runs the risk of fraudulent activity, despite less than 1% of Bitcoin transactions to exchanges found to be guilty of this.

Pursuing blockchain

The EU signed a Declaration on the Establishment of a European Blockchain Partnership on April 10, with the aim of establishing the continent as an international leader in blockchain technology. As reported by Bitcoinist, the partnership claims to be a ”vehicle for cooperation amongst Member States to exchange experience and expertise in technical and regulatory fields”.

The regulatory move from the EU follows the continued pursuit of anti-money laundering and terrorist financing policies targetting many areas of finance and traditional banking, not merely restricted to cryptocurrencies.

 

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