By Michael B. Cohen
Vice President of Global Operations
MyChargeBack
Cryptocurrency’s legal and regulatory status has long been a subject of confusion, and the rapidly evolving situation all but guarantees that confusion will continue, at least for the time being. In this article, MyChargeBack clarifies how the regulatory changes taking place will affect our clients’ payment disputes and fund recovery efforts.
The Wild West of Crypto
As the 19th century drew to a close, so did the age of the Wild West. For better and for worse, it had its day, and for better and for worse, it was over. A new day was dawning.
For better and for worse.
The rise of bitcoin was perceived by many of its proponents and detractors as a new Wild West. A new kind of money had been developed that didn’t depend on the decisions or policies of any government. The people could do what they wanted, and just like in the Wild West, for some people that meant victimizing the vulnerable.
MyChargeBack has seen it up close hundreds of times. Private individuals — not professional full time investors — with their financial futures jeopardized by predatory cryptocurrency merchants and brokers. They benefit from the commonly held belief that there’s no way to trace the crypto money trail.
Tracing Crypto Transactions
After all, untraceability is what makes crypto crypto, isn’t it? Encrypted, hidden, private?
Well, yes and no.
It’s true that the transactions are anonymized, and tracing the tokens is no simple task, but it is by no means impossible. MyChargeBack has been instrumental in developing and deploying the tools necessary to follow the crypto money trail.
Our in-house forensic blockchain analysis delivers the goods for our clients. These Crypto Trace results from MyChargeBack include every single step, every single transaction ID, every single wallet address and every single crypto exchange from the moment the tokens left our client’s wallet until they were cashed out.
Our efforts have helped innumerable clients locate their missing funds and initiate legal proceedings against the individuals and entities illegally holding them, resulting in considerable success in undoing the financial harm they have experienced. Nevertheless, it is regrettable that the process should be so convoluted and demand such an investment of time and resources.
But that’s how it is in the Wild West, right? Minimal government protection in a state of near anarchy? Every man for himself?
Regulation Comes For Crypto
Fortunately, a new day is indeed dawning, and this latest iteration of the Wild West may not be long for this world. It remains to be seen exactly what the changes will be, and precisely how they will affect consumers, but it is not too early to make some educated guesses and start planning for the future.
A certain ideological subset of diehard cryptocurrency enthusiasts strongly opposes any regulation of this new technology. Countervailing forces, however, have proven far stronger in pushing governments around the world in the direction of more robust regulation.
Consumer protection is not the only consideration mitigating in this direction. A separate — and, for governments, potentially more significant one — is Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) compliance.
In August of 2021, Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), issued a forceful call for much tighter application to cryptocurrencies of existing regulation in that country. New regulations are also being proposed.
The United Kingdom, the EU and various EU member states have also begun regulating crypto, and much more is almost certainly on the way there. A bold example is Ukraine, where legislation has legalized and regulated bitcoin with an eye toward protecting the country’s citizens from predation by bad actors. Similar trends are occurring throughout the world: in Asia, Africa, Latin America, and elsewhere.
Regulation’s Effect on Crypto Recovery
To imagine how the growing wave of government intervention in the crypto space will affect the ability of consumers to retrieve disputed transactions, a recent EU move offers some possibilities. In July of 2021, a package of directives (laws) and regulations was proposed by the European Commission which, if enacted, will effectively prohibit all anonymous cryptocurrency transactions and wallets in the EU.
Such a change to the status quo will be revolutionary for MyChargeBack‘s clients and anyone else harmed by the heretofore anonymized nature of most blockchain systems. Under the current structure, the time and effort spent by MyChargeBack to trace the transactions and wallets has been tremendous. The results of these forensic analyses, while extremely useful and valuable, nevertheless often provide series of letters and numbers to label wallets and transactions that should, in the future, be identified with the names of the actual persons involved.
Compare the situation to bank accounts and wire transactions. Think of a bank account as the equivalent to a crypto wallet address, and a bank wire verification as a crypto transaction ID. You cannot open a bank account without properly and provably identifying yourself. Even Swiss banks, the gold standard for customer privacy, follow full and robust KYC (know your customer) guidelines before taking on any new customer..
By comparison, it has been possible until now to bypass KYC within much of the crypto world. No doubt the new EU rules, when they come online, will lead to a domino effect among numerous other jurisdictions around the world.
MyChargeBack imagines a world in which cryptocurrency transactions aren’t buried beneath layers of obfuscation. Effective government regulation will result in a more transparent system, where the customer’s rights are better protected, and where MyChargeBack‘s resources will be maximized to focus on the task of complex payment dispute resolution.
