Tech
Cryptocurrencies have a trust problem, and the Illinois tech professor has a solution
Fraud, terrorist financing, money laundering. Too often, when cryptocurrency is in the headlines, the news isn’t good.
“Finance depends on trustworthy institutions, and the problem with the cryptocurrency industry is who do you trust,” he 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 focus on fintech, high-frequency trading, ethics, and strategic innovation in financial markets.
In his research article titled “A decentralized oversight model for the digital assets sector 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 oversight through globally recognized standards in order to address the issue of trust, reduce the risk of bad actors and mitigate problems which may negatively reflect on the industry as a whole.
The traditional way for financial institutions to establish trust, he explains, is to comply with rules-based regulations in their countries, where the national government has centralized authority over currency and financial markets. However, cryptocurrency presents a new paradigm of global, decentralized finance.
“Bitcoin is global and perhaps having regulatory regimes from 150 different countries is not the best way to establish trust,” says Van Vliet. “Instead of requiring individual investors to understand and navigate the chaos of all these regulatory structures, it would be much simpler, and I think more effective, to have decentralized oversight through industry-defined management and global, not local, ethical standards. “
Such a decentralized oversight model already exists and has been used for decades in many industries, although not in finance, he notes. International Organization for Standardization Management standards (ISO) are industry-specific and define the industry norms that companies must follow to obtain certification.
“More than one million companies worldwide adhere to ISO management standards in the chemical, medical, petroleum and aerospace industries, as well as other industries,” says Van Vliet. “They adhere to ISO standards because they facilitate global trade and building trust across borders. This is how I know whether to trust and that the supplier I use is not a scammer. If they are ISO certified it gives me some security.”
In addition to advocating the development of new management standards for the digital asset sector within the global ISO audit framework in his article, Van Vliet also presents a template for verifying compliance with anti-money laundering standards and knowledge processes. client for decentralized finance using a public blockchain.
Van Vliet hopes his paper will gain traction and stimulate discussion within the financial industry and among government regulators. “The Journal of Payments Strategy and Systems is an industry-focused journal subscribed to by more than 100 central banks around the world,” he says, “so the audience will be people in regulatory decision-making roles.”
“One of the main issues is combating the use of cryptocurrency to finance terrorism. This is an urgent problem that needs to be addressed, and here is a standard that could help address this problem today. So let’s see if we can operationalize the standard and see if it works.