Stricter Identity Checks on Cryptocurrency Exchange Users: EU Report’s Recommendations

According to reports, a report funded by the European Commission calls for stricter identity checks on cryptocurrency exchange users to ensure that exchange, broker, and ATM users can be identified when cashing in illegal gains. The report also states that a complete ban on the use of cryptocurrencies is ineffective in curbing dark network activities, and law enforcement agencies need to provide training on the technologies being used and the new investigative techniques required for conducting such investigations.

The report prepared by EU affiliated institutions calls for strict investigation of the identity of exchange users

The increasing popularity of cryptocurrencies worldwide has facilitated the adoption of virtual currencies for illegal purposes like money laundering, terrorism financing, and fraud. Despite the anonymity offered by most cryptocurrencies, governments worldwide are working to identify individuals’ identities using cryptocurrency to commit illicit activities.
According to recent reports, the European Commission has funded a study that highlights the need for stricter identity checks on cryptocurrency exchange users. The report states that it’s essential to ensure that all exchange, broker, and ATM users can be identified when cashing in illegal gains.
This article delves deeper into the report’s findings and insights and highlights the need for stricter identity checks to curb dark network activities.

Why Stricter Identity Checks are Important

Cryptocurrencies like Bitcoin and Ethereum operate outside the traditional financial system’s purview, making it easy for criminals to carry out illegal activities without being identified. Thus, stricter regulation is necessary to prevent the misappropriation of virtual currencies.
The European Union’s latest study recommends increased identity verification processes, including user onboarding checks to deter criminal activity. Identity verification can stop money laundering and terrorist financing, making it harder for bad actors to access the global financial system. Cryptocurrency exchanges should verify users’ identities before allowing them to initiate transactions or holding virtual currency on the platform.

The Ineffectiveness of Banning Cryptocurrencies

The European Commission’s report suggests that a complete ban on the use of cryptocurrencies is ineffective in curbing dark network activities. The anonymity provided by virtual currencies makes it impossible to track and identify users. Therefore, from a regulatory perspective, a total ban would not serve the purpose of crime prevention.
Instead, the report proposes that regulatory authorities should provide training on the technologies being used and new investigation techniques required for conducting such investigations. This would allow law enforcement agencies to investigate more efficiently and prevent the misuse of cryptocurrencies.

The Need for Law Enforcement Agency Education

The report calls for regulation authorities to provide law enforcement agencies with appropriate training to tackle crimes committed using cryptocurrencies. Law enforcement agencies and regulators should understand how virtual currencies are traded and traceable, the users’ behaviour in virtual environments, cybercrime techniques and tools used to operate the dark net, the latest investigative techniques, and strategies for responding to emerging threats.
Furthermore, the industry should collaborate more closely with regulatory bodies to increase the probability of detecting, mitigating, and preventing illicit activities. Such partnerships should encompass the entire cryptocurrency lifecycle – from creation, to trading, to the use of cryptocurrencies.

Conclusion

The European Union’s funded report calls for stricter identity checks and provides policy recommendations to curb illegal activities facilitated by cryptocurrencies. The need to identify individuals availing of these services is the most significant challenge that the authorities face. Stricter identity checks and proper training on advanced technologies are the need of the hour. Additionally, the industry should be proactive in collaborating with regulatory authorities to mitigate the misuse of virtual currencies.

FAQs

Q1. Why are cryptocurrencies often associated with illegal activities?

Cryptocurrencies are anonymous and non-regulated, facilitating criminal activities like money laundering, terrorism financing, fraud, and cybercrime.

Q2. How can authorities regulate and identify users of cryptocurrencies?

Authorities can regulate cryptocurrencies by implementing stringent identity verification processes, including user onboarding checks and transaction monitoring with appropriate tools and techniques.

Q3. How can the cryptocurrency industry collaborate with regulatory authorities to prevent illicit activities?

The cryptocurrency industry can work with regulatory authorities to establish relevant measures to counter the misuse of cryptocurrencies. This collaboration includes creating a more transparent ecosystem, reporting questionable activities, and adopting best security practices.