A Breakdown of the Shifting Regulation Situation with Changelly’s Eric Benz
A story from last week that has been making some waves in the crypto world is the report that UK tax authority HM Revenue and Customs (HMRC) is considering spending £100,000 on a blockchain analytics tool. The purpose of the expenditure would be to assist HMRC in the tying of assets to individuals exploiting cryptocurrency as a means of evading taxes and money laundering.
Long a contentious point of debate in the crypto community, the privacy vs. transparency dialogue has picked up steam over the past year or so with regulators and corporations making more significant inroads in the industry. While there is a section of the community consisting of mostly old heads and crypto purists who are strictly averse to any kind of privacy or regulatory compromise, their voices are being increasingly superseded by those belonging to individuals and entities that believe the future of the industry depends on its ability to be transparent and compliant.
The recent news out of England bears witness to where we are at in this stage of the conflict. To help shine a more comprehensive light on the situation and provide some insider knowledge, we reached out to one of crypto’s original innovators in Changelly CEO Eric Benz.
Tracking the Untrackable
First, we talked about how this move by British tax authorities stands to affect privacy coins who have made their bones in offering their users the ability to make anonymous and in some cases untraceable, transactions. Benz, who is known now mostly for what he does as the CEO of one of the industry’s biggest cryptocurrency exchange services, started by giving some personal background pertinent to what’s been happening:
“In 2013 I started the UKDCA (UK Digital Currency Association) initially lobbying both the Financial Conduct Authority (FCA) and Her Majesty’s Revenue & Customs (HMRC). This early lobbying led to many groundbreaking rules and regulations, which led to the UK becoming one of the best jurisdictions in terms of conducting blockchain and crypto-related activities. As a result of working alongside these government departments, I got an invaluable insight into how they operate.”
In Benz’s opinion, it is not a surprise that the UK is among the first countries to seek to establish a protocol of this sort:
“The UK has always had a more innovative approach to regulating financial technology and it is no different for crypto or blockchain. As technology becomes ‘smarter,’ so does the understanding of regulators and governments. However, with that being said, one has to understand that it’s not that easy to do this, especially on the scale we are potentially looking at. Bitcoin by its very nature was designed to avoid such regulatory oversight and in my opinion, the more people try to regulate it the harder it will become.”
Regarding coins that cater to users looking to protect their actions from unwanted observation, Benz had this to say:
“Privacy coins are a very good example of how the technology can quickly advance and become simply untraceable. People will always find a way to try and ‘game’ the system so it is up to the regulators to apply ‘best practices’ when it comes to crypto-related activities. The main privacy coins will quickly gain bigger followings and create more demand in the market as more regulatory oversight gets applied to bitcoin and other crypto blockchains. The big question is whether regulators can track everything. Something like DASH or ZCash, if you compare them to Bitcoin, it’s a completely different ballgame. As it stands now, it can’t really be done on that scale, but moving forward, this could get the ball rolling on that.”
Small Price Tag, Big Ambitions
Next, we discussed the underwhelming nature of the sum British authorities have bookmarked for this potential project. In an industry where people are bombarded with million and billion-dollar figures everywhere they look, a mere hundred thousand pounds seems like chump change.
The small figure doesn’t surprise Benz:
“The figure basically highlights that they really have no idea of what they will have to do or really how they will have to execute such a plan. This might be enough for a proof of concept but for an actual working, enterprise-grade auditing tool this is not even close. In my opinion, no matter how much you build or do there will always need to be a standardized ‘best practices’ approach. We also have to understand that a lot of the noise that governments are making is really just noise and these announcements hardly ever come to fruition. Let’s wait and see on this one.”
Britain is not alone in its desire to introduce tax accountability into crypto and to try and trace the assets of this sector. Governments around the world have shown interest in doing just that, as we are seeing with the China bitcoin regulation situation. But such efforts are, by definition, curtailed by the geographical jurisdiction limitations that each country has. I asked Benz whether or not he believed we would see governments banding together in the future to construct global crypto regulations:
“A lot of the recent developments and use cases, which have been shown are quite rudimentary and siloed. The beautiful thing about blockchain technology is the fact that it is without borders and the sooner governments around the world realize this the better. If only we could have one blockchain where every regulator around the world ran a node and became a validator then there would be no need for AML. The blockchain would provide real-time audibility making it pointless to do AML and saving hundreds of millions if not billions of dollars in the process. Within the next 10 years, we will see a global blockchain infrastructure, which will allow governments and regulators from across the globe to monitor and validate all transactions making many of the issues we face in financial services today obsolete.”
Untraceable Crypto Is Dead, Long Live Untraceable Crypto
Of course, such a system is a far cry from what many got involved with crypto for in the first place, and what many still value about crypto. Should it become a fully regulated entity, it is highly unlikely it will be able to facilitate transactions of large sums of money where users do not have to incur the normal fees they would face if trying to do something similar to a bank.
But Benz sees it a bit differently, noting that the diversity of this space, and the drive of the people who are innovating within it, will see crypto continue providing the solutions that have drawn people to it: “As we have come to see over the years there are many different types of blockchains and therefore many different types of crypto tokens.
“Bitcoin was designed by its very nature to avoid any type of regulatory oversight and every other type of coin has its own attributes and programmable functions. Even if such a tracing tool were to be launched, there will always be other tools that users can access to get around it. It will just mean that we are moving to the next stage of our endless game of cat and mouse.”
Benz sees these possible measures in Britain less as a threat to the way things are going than as a positive indication of how far the industry has come. We ended the conversation with him noting, “As a result of governments and institutions globally building blockchain solutions we are now witnessing immense growth and advancement in blockchain technology. We are merely scratching the surface of what blockchain technology can truly provide and it will be very exciting to continue witnessing the development in years to come.”
Regardless of how this proposal plays out in Britain, I think we all can agree that we are in for an exciting ride. Thank you for reading, and stay tuned for more updates and coverage in the future.