Governments don’t trust crypto
Bitcoin,  Cryptocurrencies,  Regulation

Governments, financial firms don’t trust crypto

A new survey suggests the crypto industry is adamant it can prevent cybercrime and money laundering, but this optimism isn’t shared by governments and financial firms

Cryptocurrency exchanges are extremely confident that they can ward off criminals who want to launder money and fund terrorist activity—but a new report suggests that governments and banks aren’t anywhere near as confident.

The Cryptocurrency Risk & Compliance Survey, produced in conjunction by the British think tank RUSI and the industry body ACAMS, showed staggeringly different attitudes to digital assets depending on whether the respondent was involved in the industry or not. It found:

  • 23% of government respondents see the likes of Bitcoin as an opportunity, compared with  80% of crypto industry
  • 89% of governments are concerned about crypto being used on the dark web, while just 50% of crypto industry respondents felt the same
  • 88% of financial institutions are worried about cryptocurrencies being used for money laundering purposes, against 57% of those who specialize in digital currencies
  • 9% of financial institutions say exchanges are prepared to deal with cybercrime, but 48% of respondents from the crypto industry say they are
  • 20% of financial institutions agree that crypto transactions offer greater levels of transparency, while 83% of digital asset specialists believe this to be the case

These statistics suggest one of two things, neither of which are particularly palatable. Either the crypto industry is overly complacent about the risk of digital assets being used illegally, or governments and financial institutions are ill informed about how the sector works.

It’s highly likely that the truth falls somewhere in between. Although the Sept. 29 report notes that criminals represent 1% of all cryptocurrency transactions—indicating that the threat isn’t as sizeable as some may think—it’s still true that digital assets have appeal among terrorist organizations and money launderers, with the likes of Monero growing particularly popular among the seedy merchants found in darknet markets. The crypto sector’s confidence in its own abilities also doesn’t bode well given how it has faced repeated hacks, with KuCoin losing digital assets worth $150 million in an audacious hack mere days ago.

“The crypto industry appears to have a great amount of confidence in their own abilities to counter and detect risk, whereas government doesn’t have nearly as much faith,” said Kayla Izenman, a RUSI research analyst who co-authored the report. “Bridging this gap is essential, as all sectors agree that the use of cryptocurrency is on the rise, but we know there’s no clear consensus on domestic regulatory action. This risks opening the door to illicit activities.” 

Where this leaves crypto

This survey suggests there are substantial levels of distrust among governments and financial institutions, which means it’s all the more important to understand how they make decisions relating to crypto regulation. Across all of the groups polled, 56% said they seek precedent based on what other governments have done in the past—indicating that early adopters have a big opportunity to shape best practices in the future. This was one of the few questions where government and crypto industry respondents appeared to be in agreement.

However, the gloomy figures don’t suggest that cryptocurrencies should be written off altogether. 

As the report notes: “Overall, respondents are more likely to agree than disagree that in five years, cryptocurrency will be an effective tool for financial inclusion… The respondents still believe that the main use of cryptocurrency in five years will be investment and speculation, but day-to-day payments ranks second, with illicit purposes moved to third. The cryptocurrency industry specifically said that day-to-day payments will become the main use of cryptocurrency.”

The findings could give a boost to the governments that have been early trailblazers in cryptocurrency regulation and adoption. As reported by Modern Consensus, China recently said that its digital yuan is now ready for deployment, while the European Commission is pressing ahead with plans to regulate cryptocurrencies and provide “legal clarity” to the sector.

How the survey worked

The study, performed in conjunction with the well-respected British polling company YouGov, received responses from 566 individuals in June and July of this year. There was little difference in attitudes based on geography, but the report’s authors said attitudes did vary depending on what the participant did for a living. Almost half of the respondents worked for financial institutions, 24% worked in government, 10% in crypto, and the rest in private sector roles—such as at law firms or insurance companies.

Although 96% of all those surveyed said they were familiar with Bitcoin, awareness dramatically dropped when it came to Ethereum (66%,) Litecoin and XRP (44%,) and Monero (32%.)

It is worth noting that this report did not include stablecoins such as Tether and Libra in its definition of a cryptocurrency—and overall, stablecoins were regarded as far less risky than the likes of Bitcoin and Ethereum.

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.