Crypto’s dark side

People worldwide are curious about crypto-asset possibilities, regardless of whether Bitcoin’s value increases or decreases.

These assets’ underlying technology, which includes blockchain, is a fascinating development that has the potential to change industries other than banking. For instance, it might enable financial inclusion by giving those without bank accounts additional, affordable payment options, empowering millions of people in low-income nations.

Some central banks have even considered issuing their digital currency due to its potential advantages.

But before we get there, we should pause and consider the promise’s danger.

The danger of cryptocurrencies

Crypto-assets, or what some call crypto-currencies, are attractive for the same reason that makes them risky. The majority of the time, these digital offerings are created decentralized and without the necessity for a central bank. Transactions involving crypto assets now have a level of anonymity similar to that of cash transactions.

As a result, a significant new vehicle for money laundering and terrorism financing has emerged.

A recent example demonstrates the magnitude of the issue.

The largest online criminal marketplace on the internet, AlphaBay, was taken down in July 2017 by a global operation coordinated by the US. For more than two years, AlphaBay served as a worldwide marketplace for the trade of illicit substances, hacking equipment, weapons, and hazardous chemicals. More than $1 billion had been transacted through crypto-assets before the site was shut down.

Financing terrorism and money laundering are only one aspect of the danger. Another is the state of your finances. The tremendous price volatility of crypto-assets, their explosive expansion, and their unclear connections to the conventional financial system can lead to new vulnerabilities.

Therefore, to address a changing challenge, regulatory frameworks must be developed. Numerous businesses have already begun.

The Financial Stability Board (FSB), which is examining what new regulations may be required to keep up with fintech innovations, is one encouraging example. Another is the Financial Action Task Force (FATF), an organization that establishes guidelines for the fight against money laundering and financing terrorism. The task committee has given nations helpful advice on handling cryptocurrencies and other digital assets.

The IMF is also addressing these challenges. Our mission has included preventing money laundering and preventing the financing of terrorism for the past 20 years. We have evaluated the regulatory frameworks of 65 nations using the FATF standards, and we have helped 120 countries build their capabilities. Our efforts have been concentrated on supporting our member nations as they face the threat of illegal cash flows.