The pseudonymous nature of bitcoin is an oft-debated characteristic of the technology and it brings up a host of opinions, some of which are valid and others, not so much. Although I believe that bitcoin is a better payment system than current conventional systems, it's futile to argue that pseudonymous (or anonymous) financial transactions over the network are a problem or a benefit of bitcoin itself.
The real question that needs to be asked is: should those that participate in the bitcoin network adhere to the same personal identification standards (commonly referred to as KYC or Know Your Customer) as those that are set for conventional payment systems? And if so, why?
There are many who strongly support the idea that, as citizens of free and democratic countries, we have basic personal rights to financial privacy, including financial transactions. This is a nice idea and there are several valid business reasons that support this concept. That said, we have to take into consideration the reality of how our government agencies operate.
But before I turn to that, it's important to note that in order to setup a conventional bank account – regardless of whether it's a personal or business account – we must all provide detailed personal information to our bankers. What most of us do not correlate is that a bank account also enables us to participate in and transact using fiat currencies and conventional payment systems such as Visa, MasterCard, Interac, etc. I don't think anyone would argue with me over this.
So back to our government agencies: across the developed world, governments have chosen to track financial transactions as a primary method of combatting illicit business activity. This mandate gained momentum with the U.S. war on drugs and has been bolstered considerably by the perceived 'war on terror.' The reality is that this is a directive that our elected governments have chosen to enforce so we all must be aware of it and take it into consideration.
As a result of this strategy, government-based banking and financial services regulators have put stringent rules in place that require banks, financial service providers and similar to track and report, if necessary, on our financial transactions. Because our personal information is provided to the banks at the time of opening a bank account, our personal information is also passed on to government agencies, if required.
Regardless of their reasoning or the validity of their directives, governments use conventional banking and payment networks to monitor commerce across the globe for perceived illicit activity. The information they collect holds a tremendous amount of value and they have built significant infrastructure around it.
Now along comes bitcoin, which operates independent of conventional banking networks and it is a decentralized global network. No central authority has control over the bitcoin network. This is a major benefit of the bitcoin network, but its innovative structure is a cause for concern for government agencies. They do not – and cannot – control the bitcoin network so they cannot track financial transactions and therefore cannot use their conventional methods to track perceived illicit activity.
Banking regulators have sent messages to banks suggesting that they avoid doing business with individuals or companies involved in bitcoin. They have often used the rational that bitcoin is too risky as a speculative investment as the reasoning for their warning. This is a fair warning, but I suspect that the explanation above is the primary reason they have asked the banks to step back from bitcoin.
Banks can still choose to work with those associated with bitcoin, and we're seeing some forward-thinking banks doing just that. It's my view that bitcoin has already passed the point of critical mass and I'd be very surprised if it does not continue to proliferate. However, it's quite uncommon for a bank to go against the suggestion of their regulator. The government regulators hold a lot of power over the banks and getting on the wrong side of them can make for a miserable time. It's therefore understandable that banks are cautious and most of them have done exactly what the regulators have recommended in regards to bitcoin.
Now back to the original question posed: should those that participate in the bitcoin network adhere to the same KYC standards as set for conventional banking and payment systems? And if so, why?
In my opinion, yes, absolutely. As citizens, consumers and business owners, we are all participants in our governments and all of their directives, regardless of how effective or valid they are. More importantly, while bitcoin has incredible potential and many benefits, it is not going to replace any of the fiat currencies that are backed by the governments of developed nations (i.e. USD, Euro, GBP, CAD, etc.). For those of us who live and work in these countries, the ability to have banking and use fiat currencies will remain important if we want to participate in commerce. To truly reap the benefits of bitcoin, we'll need to be able to efficiently convert fiat back and forth to bitcoin.
As long as our governments choose to use tracking of financial transactions as a primary method of combatting illicit business activity, then it's important both as businesses and as consumers that we know and understand whom we are transacting with, regardless of the payment medium used. So if you run a business that wants to use bitcoin as an online payment method, and you also want to maintain your bank accounts, then I'd strongly suggest you properly capture and validate the personal information of all of your customers. Be sure to validate their information and make sure that you're not doing business with anyone perceived to be acting in an illicit manner. Even better, work with a reputable service provider that will not only process bitcoin for you but will also provide the customer information capture and validation as part of their service offering.
The risk is not in using bitcoin. The risk is in knowing nothing of your customers, getting associated with perceived illicit activity and then running afoul with the banks or, even worse, government agencies.
Geoff Gordon is CEO of Vogogo.com. He has 13+ years of experience in e-commerce and payments as a builder, operator and executive. He has built and operated payment services in several countries including: US, Canada, Japan, Australia, Philippines and China (Hong Kong).
Vogogo automates payment processing, regulatory compliance and risk management enabling cryptobusinesses to transact seamlessly with fiat currencies.
Critical to the Future of Bitcoin for Business – Supporting Conventional Efforts to Combat Illicit Activity The pseudonymous nature of bitcoin is an oft-debated characteristic of the technology and it brings up a host of opinions, some of which are valid and others, not so much. Although I believe that bitcoin is a better payment system than current conventional systems, it's futile to argue that pseudonymous (or anonymous) financial transactions over the network are a problem or a benefit of bitcoin itself.
The real question that needs to be asked is: should those that participate in the bitcoin network adhere to the same personal identification standards (commonly referred to as KYC or Know Your Customer) as those that are set for conventional payment systems? And if so, why?
There are many who strongly support the idea that, as citizens of free and democratic countries, we have basic personal rights to financial privacy, including financial transactions. This is a nice idea and there are several valid business reasons that support this concept. That said, we have to take into consideration the reality of how our government agencies operate.
But before I turn to that, it's important to note that in order to setup a conventional bank account – regardless of whether it's a personal or business account – we must all provide detailed personal information to our bankers. What most of us do not correlate is that a bank account also enables us to participate in and transact using fiat currencies and conventional payment systems such as Visa, MasterCard, Interac, etc. I don't think anyone would argue with me over this.
So back to our government agencies: across the developed world, governments have chosen to track financial transactions as a primary method of combatting illicit business activity. This mandate gained momentum with the U.S. war on drugs and has been bolstered considerably by the perceived 'war on terror.' The reality is that this is a directive that our elected governments have chosen to enforce so we all must be aware of it and take it into consideration.
As a result of this strategy, government-based banking and financial services regulators have put stringent rules in place that require banks, financial service providers and similar to track and report, if necessary, on our financial transactions. Because our personal information is provided to the banks at the time of opening a bank account, our personal information is also passed on to government agencies, if required.
Regardless of their reasoning or the validity of their directives, governments use conventional banking and payment networks to monitor commerce across the globe for perceived illicit activity. The information they collect holds a tremendous amount of value and they have built significant infrastructure around it.
Now along comes bitcoin, which operates independent of conventional banking networks and it is a decentralized global network. No central authority has control over the bitcoin network. This is a major benefit of the bitcoin network, but its innovative structure is a cause for concern for government agencies. They do not – and cannot – control the bitcoin network so they cannot track financial transactions and therefore cannot use their conventional methods to track perceived illicit activity.
Banking regulators have sent messages to banks suggesting that they avoid doing business with individuals or companies involved in bitcoin. They have often used the rational that bitcoin is too risky as a speculative investment as the reasoning for their warning. This is a fair warning, but I suspect that the explanation above is the primary reason they have asked the banks to step back from bitcoin.
Banks can still choose to work with those associated with bitcoin, and we're seeing some forward-thinking banks doing just that. It's my view that bitcoin has already passed the point of critical mass and I'd be very surprised if it does not continue to proliferate. However, it's quite uncommon for a bank to go against the suggestion of their regulator. The government regulators hold a lot of power over the banks and getting on the wrong side of them can make for a miserable time. It's therefore understandable that banks are cautious and most of them have done exactly what the regulators have recommended in regards to bitcoin.
Now back to the original question posed: should those that participate in the bitcoin network adhere to the same KYC standards as set for conventional banking and payment systems? And if so, why?
In my opinion, yes, absolutely. As citizens, consumers and business owners, we are all participants in our governments and all of their directives, regardless of how effective or valid they are. More importantly, while bitcoin has incredible potential and many benefits, it is not going to replace any of the fiat currencies that are backed by the governments of developed nations (i.e. USD, Euro, GBP, CAD, etc.). For those of us who live and work in these countries, the ability to have banking and use fiat currencies will remain important if we want to participate in commerce. To truly reap the benefits of bitcoin, we'll need to be able to efficiently convert fiat back and forth to bitcoin.
As long as our governments choose to use tracking of financial transactions as a primary method of combatting illicit business activity, then it's important both as businesses and as consumers that we know and understand whom we are transacting with, regardless of the payment medium used. So if you run a business that wants to use bitcoin as an online payment method, and you also want to maintain your bank accounts, then I'd strongly suggest you properly capture and validate the personal information of all of your customers. Be sure to validate their information and make sure that you're not doing business with anyone perceived to be acting in an illicit manner. Even better, work with a reputable service provider that will not only process bitcoin for you but will also provide the customer information capture and validation as part of their service offering.
The risk is not in using bitcoin. The risk is in knowing nothing of your customers, getting associated with perceived illicit activity and then running afoul with the banks or, even worse, government agencies.
Geoff Gordon is CEO of Vogogo.com. He has 13+ years of experience in e-commerce and payments as a builder, operator and executive. He has built and operated payment services in several countries including: US, Canada, Japan, Australia, Philippines and China (Hong Kong).
Vogogo automates payment processing, regulatory compliance and risk management enabling cryptobusinesses to transact seamlessly with fiat currencies.
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