An industry expert maintains it is easy to keep virtual assets in check. finews.asia takes a look.

As the fickle snow drifts of a long crypto winter continue to take their toll, one thing has become clear. There will be more regulation.

Although efforts have been underway worldwide for a while to better bring them into the same umbrella that conventional financial market assets follow, as exemplified by the FATF’s so-called «travel rule», the conventional wisdom by many experts is that much more is needed, particularly in the wake of FTX’s collapse late last year.

But Christopher Goes, an industry expert and the co-founder of anoma, takes an entirely different view. According to him, it should be much easier, not harder, to ensure regulatory compliance for virtual assets than it is for traditional ones.

Completely Agnostic

The company he co-founded in 2021 makes open-source protocols, or essentially freely available public tools, methods, or routines for tech components to talk with each other.

They allow everyone, including regulatory authorities, to get whatever information they need from digital asset activity in a completely agnostic way - or objectively.

The problem is that the virtual asset industry and regulators are talking at cross-purposes with each other.

Clear Misunderstanding

The decision in early February by the Virtual Assets Regulatory Authority in Dubai to prohibit privacy coins (Regulations 2023, bottom of page 9) shows, according to him, a clear misunderstanding of the meaning of privacy in a tech context.

«Regulators often don’t get digital asset privacy. As we saw when Dubai rejected privacy coins, it was an unfortunate decision that did not reflect the tech,» Goes maintains.

Too Transparent

Bitcoin is an example of too much transparency, he continued, as when someone interacts with it, anyone else can see where the funds came from even if they don’t know their identity.

And that information is available to banks, next-door neighbors, hackers, and even foreign governments.

«In a way, it is the most transparent system there is. But that is not necessarily something people want as it goes too far,» Goes says.

A Regulator’s Dream

Privacy coins were developed exactly for that reason and the term is misleading in that only relates to the settlement technology, and it is not a characteristic or property of the asset itself.

According to him, the regulators in Dubai might have been better served by looking more closely at the use of cryptographic signatures, and photographic images of public keys and private keys. 

«It should all be a regulator’s dream. They can set the requirements for the information necessary for funds from specific places. They can specify what they want to see and how,» he says.

Same Calculus

Moreover, Goes believes that standard financial industry regulation has some good and practical precedents based on experience developed over time and the essential calculus doesn’t change very much with digital assets.

According to him, communications go wrong when the word privacy is used, as it is taken to imply certain things are withheld from everyone, which is «just not true».

«The thing is that this tech is not revolutionary, and governments and regulators can articulate what data should be submitted to them,» Goes says.

High Costs

As finews.asia reported yesterday, virtual asset regulation in Hong Kong will rachet up significantly by the middle of this year.

It will likely make such businesses as expensive to staff and run as a traditional bank given they seem intent on applying cookie-cutter type «one size fits» legacy-type regulation.

Instead, they may better be served by using tech to keep tech in check.