Digital currency communities must use blockchain technology for self-monitoring.

Digital currency communities must use blockchain technology for self-monitoring.

Self-monitoring of illegal activities of blockchain may soon become a necessary condition for digital currency communities.

Every day in the future, digital currency fans may spend time identifying illegal transactions to avoid these things. The U.S. Treasury Department has made a decision and cannot change it.

A few weeks ago, the US Treasury Department quietly posted a supplement to the frequently asked questions on the website of the Office of Foreign Assets Control (OFAC), which is responsible for supervising US economic sanctions. OFAC's language plan includes the address of "digital currency" in its specially designated National and Blocked Persons List (SDN).

This will be a great event.

Banks and all kinds of enterprises should check the SDN list to ensure that they do not provide financial services to individuals, organizations and governments designated by the United States as "blockade targets" because of their involvement in crimes such as terrorists, nuclear proliferation, theft and human rights violations.

Banks can legally freeze their assets on the OFAC list and stop their transactions. If you don't do this, the economic punishment may be more serious. Although most investors in digital currency know little about this world which is restricted and sanctioned by law, operators of any form of financial business know that if you don't obey the management of law, you may lose your business and property in an instant.

No specific digital currency address or property has been listed in OFAC before, although legal experts have believed for years that it is illegal for Americans to send bitcoin or other digital currency to anyone on the SDN list.

However, there are great differences between closed-end funds in the financial sector and funds that can exist in digital currency. Third parties cannot prevent and supervise peer-to-peer digital currency transactions.

Therefore, the digital currency fund designated by OFAC is more likely to bring about the review of its external address than the designated fund itself.

Some experts in the digital currency industry believe that the designation of funds in digital currency will usher in a new era; Tokens are classified as clean, contaminated or unknown according to their association with SDN addresses.

This may lead to different price levels of coins in the same blockchain, and the price of clean tokens will be higher than that of contaminated or unidentified tokens, thus ending the substitutability that has existed since the existence of digital currency.

First, it can be expected that the value of blockchain forensics tools will be higher and higher, and it will be more and more widely developed, because digital currency trading aims to reduce the risk of users trading polluted currency.

It's up to you.

However, the most important part of the new era is that financial institutions review digital currency's trading address, which will be what the digital currency community must do: regularly stop illegal transactions on the blockchain.

This is what the digital currency community does not want to hear.

Experts in digital currency often point out that "resisting censorship" is the most valuable feature of technology, which allows anyone to store and send funds without any restriction of government rights. Theoretically, this is a very powerful impetus to freedom and democracy.

In practice, this technical ability is impossible to extend in most laws within the jurisdiction related to financial crimes. Although getting rid of a corrupt government is a worthy goal, digital currency communities should realize that being passive is morally unacceptable. However, there is increasing evidence that criminals and terrorists use community freedom.

In recent years, anti-money laundering (AML) compliance experts have paid attention to the behavior of the blockchain industry, and encouraged digital currency enterprises to go beyond the "Know Your Customer" (KYC) due diligence required by traditional financial institutions and conduct "KYT" analysis by changing the data on the blockchain.

Many start-ups specialize in such blockchain forensics and conduct digital currency transactions with other law enforcement agencies and corporate customers of large banks. The analytical tools of these companies are very effective in fighting crime, but many voices in the blockchain community criticize this tool-saying that it will anonymize the financial transactions in the blockchain-destroying privacy. However, most of the information from blockchain forensic doctors is not open to the public. Usually, corporate or government customers need to access this data.

However, listing digital currency addresses by OFAC will increase the risk of KYT analysis.

This is very important for everyone involved in the digital currency transaction, which will enable them to verify the "legality" of the addresses they touch.

Although it is likely that the number of designated addresses will start from the minimum (OFAC will not specify addresses easily), even the probability of violating sanctions is very small, which will reduce the compliance risk and affect people's token buyers.

Unexpected transactions with banned addresses or addresses whose addresses have been banned will be visible in the general ledger of public blockchain, and may also defile this person's digital currency funds.

The only way to help daily users in digital currency get rid of the blockchain platform affected by SDN is to have real-time AML/KYT to gain insight into the capital flow of various capital addresses. Judging from the current situation, blockchain analysis is only in silos and only provided to financial companies and legal departments, so this method is simply impossible to achieve.

Centralized anti-money laundering

We need an open source platform to mark illegal activities and censor defamatory information. We call it the centralized anti-money laundering of blockchain.

I understand this need. As a researcher of a non-profit national security think tank, I investigated digital currency and illegal financing events, such as bitcoin terrorist financing in the Middle East. Our team uses the free and open blockchain exploration website to analyze the donations of these activities.

These tools are not as powerful as those of the government and banks, and they can use expensive special machine learning and algorithm tools. Even through strict manual tracking and blockchain activity analysis, when I see the address of the logo dealing with terrorist funds, there is no effective way to share my findings on the platform, so daily users in digital currency can see my' logo' and try their best to evaluate its accuracy, so as to prevent their addresses from being polluted.

The industry can help solve this problem.

Two years ago, I suggested that digital currency experts should set up their own gatekeeper groups to look for malicious activities in the blockchain, just like how "white hat" hackers mark viruses and other cyber threats. The financial sector plan makes it most important for digital currency communities to establish self-monitoring initiatives.

In addition to collecting OFAC blacklists, an open crowdsourcing blockchain anti-money laundering tool can solve the illegal financial threat that directly affects users in digital currency: digital currency robbery. This will allow victims of blackmail or trading hackers to voluntarily list their blackmailed or stolen tokens.

Although this will not transfer the funds back to their rightful owners, it will make it more difficult to transfer or steal coins, and will affect the theft in digital currency for a long time.

Of course, for a self-monitoring anti-money laundering platform, there must be a method to review the list, so that inaccurate and illegal information will not be sent out. Otherwise, such tools will be abused to wrongly tamper with the address and then economically persecute innocent people. However, implementing anti-money laundering on the blockchain platform is a more technical solution to the problem, rather than finding reasons to refuse to seek better methods.

The first blockchain protocol, the breakthrough of Bitcoin, is to design a decentralized method to encourage strangers to complete and confirm the authenticity of global financial records.

Of course, based on all the attention, time and money invested in new products and services, people who develop this technology should be able to design ways to encourage blockchain to be clean and unpolluted.