The crypto industry has seen a significant move towards compliance with regulation since the early days, according to James Smith, elliptic co-founder, a crypto compliance company established in 2013.
“In the early days, only a few companies approached following a serious way,” Smith told cointelegraph in the event of token2049. “Coinbase was our first customer – they knew from the beginning that they wanted to build their business that way. But for most others, this is not just a top priority.”
That began to move as regulators, including those in the New York State, took a more active interest in the crypto industry. The involvement of traditional financial institutions such as Fidelity and DBS Bank also contributed, as they entered the space with established compliance expectations from traditional financial services.
For example, Fidelity, offered a first crypto service for customers in 2019, while the Asian giant DBS created a digital exchange for accredited and institutional investors in 2020.
“We've seen a big change in the last few years. The exchanges on the global map have all been careful about following today, because they want to be part of a global ecosystem,” Smith said.
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Following questions after bybit hack
Crypto exchanges and peer-to-peer protocols remain the main targets in adherence to the industry. For authorities, these firms are seen as choke critical points in which anti-money laundering and greater financial monitoring controls occurred. At the same time, they are often candidates for sophisticated hacks and laundering operations, as seen in the Lazarus group tactics.
The latest example is derived from the Bybit Hack, where the Lazarus team engages in a sophisticated money laundering method with funnel funds. Hackers quickly replaced low-liquid tokens for Ether (ETH), then replaced them for Bitcoin (BTC) using No-KYC (knowing your customer) decentralized exchange.
“They went through some KYC exchanges, which probably should not exist, but also with a decentralized protocol where there is a lot of liquefication that enables them to get it into Bitcoin,” Smith said, adding “it makes it easy for them as an industry.”
Smith also noted that even after the companies had dropped funds as stolen, users continued to exchange them through decentralized platforms. “Why is there so much liquid available to help the launder of this money?” He said that liquidity providers in such protocols should be subjected to major checks on the source and destination of funds. “Go and see who earn money. And that's the first place to start putting some controls.”
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