Cryptocurrency frequently finds itself in the news, and unfortunately, the stories often revolve around illicit activities like fraud, funding for terrorist groups, and the illegal movement of funds.
“The bedrock of finance is reliable institutions. The challenge within the cryptocurrency space is determining who is actually trustworthy,” explains Benjamin Van Vliet, an Associate Professor of Finance at Illinois Institute of Technology’s Stuart School of Business. Professor Van Vliet’s expertise spans fintech, rapid trading strategies, and ethical considerations combined with strategic innovation in the world of financial markets.
In his research article, “A Model of Decentralized Oversight for the Digital Asset Industry with an Example Anti-Money Laundering/Know-Your Customer Standard,” recently featured in the Journal of Payments Strategy and Systems, Van Vliet suggests that the cryptocurrency sector embrace a decentralized oversight system utilizing globally accepted benchmarks. This move would foster greater trust, limit the influence of malicious individuals, and reduce the incidents that cast a negative light on the entire industry.
He points out that traditional financial organizations build trust through adherence to regulations established within their respective countries. In this established system, the national government possesses centralized control over currency and financial operations. However, cryptocurrencies introduce a new era of worldwide, distributed finance.
“Bitcoin operates globally, and relying on the diverse regulatory frameworks of 150 different nations may not be the most effective method for establishing confidence,” Van Vliet argues. “Instead of expecting individual investors to decipher and navigate the complexity of numerous regulatory systems, a more straightforward and, in my opinion, more effective approach would involve decentralized oversight. This could be achieved via industry-defined management principles and ethical standards applicable worldwide, not just locally.”
He highlights that this decentralized oversight model already exists and has been implemented across various industries for many years, albeit not in finance. The International Organization for Standardization (ISO) develops management standards tailored to specific sectors. These standards outline industry best practices that companies must meet to receive certification.
“Worldwide, over a million companies adhere to ISO management standards across industries such as chemicals, healthcare, petroleum, and aerospace, among others,” Van Vliet states. “They comply with ISO standards because it facilitates international trade and fosters trust across borders. ISO certification helps me know whether a potential supplier is reliable and not a fraud. The certification offers a degree of assurance.”
In his paper, Van Vliet not only advocates for the development of new management standards for the digital asset industry within the ISO audit structure but also proposes a model for verifying compliance with anti-money laundering and know-your-customer standards within decentralized finance, utilizing a public blockchain.
Van Vliet hopes his paper will spark interest and conversations within the finance world and among government regulators. “The Journal of Payments Strategy and Systems caters to an industry audience and has subscriptions from over 100 central banks globally,” he notes. “Therefore, the readership consists of individuals in regulatory decision-making roles.”
“A critical challenge is addressing the use of cryptocurrency to fund terrorist activities. This is a pressing issue that requires immediate attention, and the proposed standard has the potential to contribute to its resolution. Let’s explore the feasibility of implementing and testing this standard.”