Coinfirm will be partnering with Ripple to analyze cryptocurrency transactions to see if they passed through coin mixers and rate their risk level for AML compliance reasons.
— Forbes Crypto (@ForbesCrypto) June 26, 2019
In addition to identifying if the transaction has passed through a mixer and its AML risk level, Coinfirm will attempt to identify if funds have originated from a theft or hack. The risk level will be evaluated on a low, medium, and high scale from “0 to 99, with 99 being the highest risk for money laundering”. However, Coinfirm will not associate personal identities with the public cryptocurrency addresses, their CEO, Pawel Kuskowski, who previously was the head of global AML for the Royal Bank of Scotland, highlighted.
“I won’t know who you are personally. We don’t do any personal data. We argue with FATF that this is completely sufficient, and effectively it is sufficient.
The contract announcement comes just a week after the Financial Action Task Force (FATF) released new guidance that requires that cryptocurrency exchanges share information with each other, such as names of counterparties, which is the current norm for the traditional banking ecosystem. FATF’s 37 member countries have a year to comply with the guidance, but since membership in FATF is voluntary, the exact rollout is up to each individual member country.
Middle ground of AML regulations
Cryptocurrency was created to help prevent companies and governments from identifying individuals’ personal financial transactions and using that against them by attempting to sell more products or blacklisting their spending. However, more chain analysis companies are making this premise obsolete and leading to more private cryptocurrency options, including coin mixing services. Thus, an arms race is beginning to developer to find increasingly difficult new ways to obscure transactions while governments are trying to find news ways to de-anonymize individuals.
This new Coinfirm method is a middle ground in that it satisfies regulators’ need to have systems in place that is supposed to detect money laundering and other financial crimes without forcing cryptocurrency users to actually reveal their identity. However, possible repercussions from this technology is that if governments notice too many high risk transactions going to certain exchanges or merchants, then the government may put pressure on that exchange and merchant to not accept payments from these high risk addresses. Also, there is the risk that the risk level detector will be calibrated incorrectly and force many individuals and businesses to have to deal with their transactions being improperly flagged as a false positive and either having to switch addresses, accounts, or might even be forced to reveal more personal information.
Dash providing privacy options for users
Dash’s main blockchain offers the same level of pseudo-anonymity as Bitcoin and other cryptocurrencies by simply having no personal identity linked to alphanumeric cryptocurrency addresses. However, Dash then offers PrivateSend as an additional feature for those that wish to have more privacy by mixing their funds to obscure their addresses. PrivateSend goes beyond standard mixing by having multiple rounds of mixing as opposed to the single rounds of standard mixing services. Dash also recently added a new 0.001 denomination to help increase mixing speeds and decrease costs.
However, Dash has also been achieving more decentralized exchange integrations as a way to further prevent crackdowns on individuals, which might be necessary depending on how cryptocurrency regulation and enforcement develops, as discussed above. Plus, Dash intends to create an entire decentralized app ecosystem (DApps) to further enable consumers to create more ways to satisfy consumers’ anonymous and decentralization needs.