Bitcoin Must Be Regulated, Panama Papers Scandal Exposes

The true meaning of decentralisation might be that a decentralized currency actually does require centralization. CoinTelegraph speaks to Brandon Kostinuk of the Vanbex Group to look into the “common confusion”.

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Bitcoin Must Be Regulated, Panama Papers Scandal Exposes

The true meaning of decentralisation might be that a decentralized currency actually does require centralization. CoinTelegraph speaks to Brandon Kostinuk of the Vanbex Group to look into the “common confusion”.

It is Kostinuk who calls it “a common confusion”. He explains that in the financial world the realization of a decentralized system, one without a central clearing house or authority to act as the intermediary between transactions, is an ideal proposition for anonymity and personal privacy.

Kostinuk argues that the above described arrangement is not a practical approach to financial governance in the 21st century, not with data already present on money laundering and other illicit financial activity.

Top 10 highest risk countries

In its 2015 Anti-Money Laundering Index, the Basel Institute on Governance, an independent not-for-profit competence centre that specializes in corruption prevention, public governance, anti-money laundering and more, reported on the the risk of money laundering and terrorist financing of countries worldwide.

The Basel Institute used 14 different indicators that deal with Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regulations, corruption, financial standards, political disclosure and rule of law to aggregate an overall score, which is then used to compile an index rated from highest risk to the lowest.

In examination of the top 10 on their list, the Basel Institute concludes:

“The majority of high-risk countries are characterized by intrinsic weaknesses in both preventing and enforcing multiple aspects of the AML/CFT framework.”

Reasons raised refer to structural and functional vulnerabilities such as high rates of perceived corruption, lack of judicial strength, but also, and most relevant to the subject here, a lack of resources to control the financial system, and lack of public and financial transparency.

Bitcoin must be regulated and overseen in order to survive

Kostinuk points out that to enable the kind of security, trust and level playing field a public-use financial system requires, it must be accessible to overseers.

Further, that process, along with the system itself, must be as open and transparent as necessary to regulate and enforce against illicit activity.

To push further his argument, Kostinuk makes reference to R3CEV’s announcement, which he describes as “an announcement in the waiting, the logical progression for the financial sector.”

In this announcement contains the opinion that to make the step toward adopting next generation technology, that technology can’t mean a fatal disruption of such a prominent pillar within the global system.

Further, it’s the technology, not the semantics attached and associated, that is most important.

Brandon Kostinuk, Vanbex Group

Building trust and viability

R3 is reverse-engineering, tackling the problem of adapting blockchain technology to fit to current constraints and frameworks.

Richard G. Brown, chief technology officer at R3, writes:

"We are not building a blockchain. Unlike other designs in this space, our starting point is individual agreements between firms. We reject the notion that all data should be copied to all participants, even if it is encrypted."

Maintaining a decentralized structure, R3’s latest technology helps adapt blockchain technology to long-established regulatory and supervisory frameworks.

Key focuses of Corda that that help build trust and mainstream viability, include:

  • A design that directly enables regulatory and supervisory observation of nodes;
  • Support of a variety of consensus mechanisms;
  • It is built on industry-standard tools and has no native cryptocurrency.

These are frameworks, as the Basel Institute attests to, that are necessary to combat illegal activity like money laundering and terrorist financing, among other elements and actions of malefactors.

Control and regulation at the local or individual level

Corda’s blockchain architecture also allows for interoperability and flexibility so as not to restrict and constrict inclusion. Agnostic is the best avenue in the digital space.

Further, R3 reports that the technology will include agreement at the “local” or individual level as well as offer validation between just parties involved in a transaction in contrast to a “broader pool of unregulated validators.”

Kostinuk explains that the fact financial institutions are at the core of this development also stands to reason individuals could then exist and operate on a layer above, supported by the same fiscal framework the global economy currently beats to, just one more efficient and cost-effective.

He says to CoinTelegraph:

“To anyone that believes a decentralized, peer-to-peer system could operate without regulation and oversight, consider the Panama Papers scandal. Even with rules and regulations, citizens — some of the wealthiest and supposedly legitimate businesspeople — circumvented the system for their personal gain. You can point to that and say the system as it is is not working, but one devoid of any ability to regulate and oversee sounds all the more alarming.”

Financial systems need some form of control, regulation and oversight and blockchain technology allows us to do just that. Another question is whether that is the kind of blockchain we want.


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