Even high-profile enterprises like IBM have started to implement blockchain tech. It is also a popular topic among startups and entrepreneurs.
The technology provides a system that removes centralized control and the need for trust frameworks. It offers decentralization, transparency, and immutable record-keeping.
These remarkable features have led to the development of cryptocurrencies and exchanges, which also enable digitalization and tokenization of assets.
For unbanked and underbanked individuals across the globe, this means greater access to financial services where there was previously little alternative to traditional banks.
Is the blockchain ecosystem reliable?
For a tech like a blockchain to gain wider adoption, there needs to be a level of guarantee that the ecosystem can be trusted and relied upon.
However, with the recent news of crypto hacks and fraudulent transactions done via blockchain, there certainly is a lot that needs to be addressed.
One of the things that can help effectively curb irregularities in any ecosystem would be to establish proper regulatory and compliance frameworks. Blockchain tech may be lacking in this area, although we can be optimistic with recent developments that are strengthening compliance frameworks.
A recent study conducted on 216 crypto exchanges revealed that 69 per cent of these exchanges do not have complete and transparent KYC procedures, and over 70 per cent of them did not incorporate proper Anti Money Laundering (AML) procedures. The imbalance of frameworks gives room for irregular operations and fraudulent activities.
Another report by Bitwise Asset Management claimed 95 per cent of all reported bitcoin trading volume is faked. This staggering percentage is enough to raise eyebrows and drive the demand for proper regulatory and compliance frameworks to protect users and investors from possible fraud.
Other research has revealed the mass irregularities that take place in the crypto market — all of which are a result of the absence of proper regulation. When you add the current rise in blockchain breaches and crypto heists, you can understand how low trust in the blockchain ecosystem has come to be.
While transactions on the blockchain are transparent by nature, the anonymous and decentralized nature obfuscates the players involved, which opens the possibility for criminal, illicit, or illegal transactions to occur. Advanced compliance frameworks are thus necessary for blockchain to earn trust among users.
To address this, a number of firms have introduced solutions that enhance the integrity of digital assets and transactions. Onchain Custodian, for one, offers trusted asset custodianship frameworks to fill the security and transparency gap that exists in the digital asset industry.
Custodianship ensures that assets are kept in a secure state, which is safe from attacks that can commonly befall online or hot storage mechanisms. For the company, regulation is one of the things that can encourage better adoption of blockchain and cryptocurrencies, especially in a business environment.
“Regulation is sometimes perceived as a bad thing. However, if properly done, it will enable mass adoption. Trust in the industry will also be immensely increased.
The challenge we are currently confronted with is the lack of clarity and the inconsistency of the regulations across different countries. Either there is no regulation at all or the regulators try to apply existing regulations that sometimes are not fit for purpose,” says Alexandre Kech, CEO, Onchain Custodian, a company that specializes in digital asset custody.
Transparency and visibility
Another step in ensuring such compliance is by instituting advanced monitoring and analytics that can help foster transparency in the ecosystem.
According to Anatoly Ressin, Chief Blockchain Architect for blockchain monitoring and analytics firm PARSIQ, “there is an inadequacy in terms of how cryptocurrency exchanges, blockchain companies, and the industry in general address data in their platforms. Thus, there is a gap in terms of how quickly any movements across the blockchain can be addressed — especially if there are illicit or unwanted transactions.”
Tools have not previously been available that allow developers to simply and quickly create automated triggers, or program complex logic conditions that will act in realtime to give new insights and more advanced levels of monitoring than are currently possible,” says Ressin.
Addressing such transparency is why firms like PARSIQ developed advanced monitoring and analytics tools that will help enhance compliance in the ecosystem. PARSIQ provides a comprehensive and modular blockchain analytics platform that offers real-time analysis by parsing both historical blockchain transactions, unconfirmed transactions, and other data across different chains.
This ensures activities in the blockchain ecosystem are constantly monitored and parties are alerted to any irregularities as they happen.
Decentralised KYC Procedures
Part of the drawbacks of KYC procedures is the time and resources required for facilitation. Some KYC procedures in most cases take days or even weeks to complete.
However, staying true to blockchain, decentralized digital identity solutions (self-sovereign identity) similar to Blockpass can be adopted to facilitate seamless KYC procedures.
These will enable clients to create decentralized identities that are verified and can be used across various platforms without repeatedly having to go through KYC procedures. Organizations save on cost and time, as well.
Blockchain scalability is dependent on compliance
Even if blockchain is, by definition, a trustless platform, there is merit to incorporating the trust factor, in order to increase utilization and scalability.
This includes improving transparency and visibility through advanced analytics and monitoring, enhanced asset security, and adopting better KYC/AML procedures. Putting measures like these in place will largely contribute to wider adoption of blockchain and inspire greater confidence amongst enterprises.
Source: e27
