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Crypto Has a Trust Problem and Illinois Tech Professor Has a Solution
Fraud, terrorist financing, money laundering. Too often, when cryptocurrencies make headlines, the news is not good.
“Finance depends on trustworthy institutions, and the problem with the cryptocurrency industry is who do you trust,” says Benjamin Van Vliet, associate professor of finance at the Stuart School of Business at the Illinois Institute of Technology. Van Vliet’s research and teaching focuses on fintech, high-frequency trading, and ethics and strategic innovation in financial markets.
In his research paper entitled “A decentralized monitoring model for the digital assets industry with an example of an anti-money laundering/know your customer standard“, recently published in the Journal of Payments Strategy and Systems, Van Vliet proposes that the cryptocurrency industry adopt decentralized monitoring through globally recognized standards in order to solve the trust problem, reduce the risk of actors malware and mitigate issues that can harm the environment as a whole.
The traditional way for financial institutions to establish trust, he explains, is to comply with the rules-based regulations in place in their countries, where the national government has centralized authority over money and financial markets. . However, cryptocurrency presents a new paradigm of global, decentralized finance.
“Bitcoin is global, and perhaps having regulatory regimes in 150 different countries is not the best way to build trust,” says Van Vliet. “Instead of requiring individual investors to understand and navigate the mess of all these regulatory structures, it would be much easier, and I think more effective, to have decentralized oversight through industry-defined management and global, not local, ethical standards. »
Such a decentralized monitoring model already exists and has been used for decades in many industries, but not in the financial sector, he notes. International Organization for Standardization Management Standards (ISO) are industry specific and outline the industry standards that companies must follow to be certified.
“More than a million companies around the world adhere to ISO management standards in the chemical, medical, petroleum and aerospace sectors, among others,” says Van Vliet. “They adhere to ISO standards because it facilitates global trade and building trust across borders. This is how I can tell if I need to be sure that a supplier I’m using isn’t a scammer. If they are ISO certified, that gives me some confidence.
In addition to arguing in his article for the development of new management standards for the digital asset sector within the global ISO auditing structure, Van Vliet also presents a model for verifying compliance with anti-money laundering standards money and know-your-customer processes for decentralized finance using a public blockchain.
Van Vliet hopes his article will gain traction and stimulate debate within the financial industry and among government regulators. “The Journal of Payments Strategy and Systems is an industry-focused journal subscribed to by over 100 central banks around the world,” he says, “so the audience will be people in decision-making positions in matters of regulation.
“One of the main challenges is to fight against the use of cryptocurrencies to finance terrorism. This is an urgent problem that needs to be solved, and here is a standard that could help solve this problem today. So let’s see if we can implement this standard and see if it works.