How do cryptocurrencies make it into the mainstream?
Essentially it comes down to their ability to support three properties; Metadata, Attribution and Compliance.
In this post we will discuss compliance and its essential features.
“Compliance is a construction of things like KYC - which stands for Know Your Customer...AML - which stands for Anti Money Laundering...and Anti Terrorist Financing [ATF]”, says Charles Hoskinson, co-founder of Ethereum with notable cryptocurrency heavyweight, Vitalik Buterin.
“Basically they are all the same notion of; ‘there’s a transaction that has occurred - what do we know about this transaction such that we can say it’s a legitimate transaction?’”
While this seems like a very basic concept, it’s actually an issue that many solutions in the cryptocurrency space have left unanswered.
Charles Hoskinson, who is now working on Cardano, a proposed “third generation blockchain”, hopes to rid the space of this issue.
“[Compliance] is the bread and butter of every single financial institution - whether they’re an exchange, a bank, or anybody who’s in a position to be a money service business - where they’re handling money on behalf of somebody else”
The fact is that banks don’t want to budge on this point. Trying to steer legacy financial institutions away from this need to implement the principles of KYC, AML, and ATF is like a lone hyena trying to steal a fresh kill from a pride of hungry lions.
“[Cardano’s aim] is to find a healthy balance where once we’ve distributed these cryptographic credentials and once we have provisions for metadata - that [Attribution and Compliance] can be put together in a very creative way, on a case-by-case basis and a voluntary basis so that when someone in the crypto world wants to do business in the legacy world, they have an ability to escalate the transaction from a standard cryptocurrency transaction to one that a bank would actually recognize and feel very comfortable with”
Imagine for example that you issue an ERC 20 token and do a crowdsale but instead of having all donations be anonymous, you require that they all be tagged with some kind of attribution and metadata relevant to both the sender and the receiver.
But taking these additional measures doesn’t necessarily mean throwing in the towel to legacy financial institutions and throwing away privacy measures.
One of the most amazing things about the space today is that we now have the cryptographic technology to create a perfect balance and sense of harmony whenever interfacing between the crypto world and the legacy systems.
“Things like trusted hardware [gives us] all kinds of capabilities - from very secure ways to store credentials to the ability to provide guarantees that data has been destroyed after a period of time...”
This is the interoperability element of Cardano. If they are successful, Cardano will essentially fulfill the function of being the master translator that can facilitate communication across varying blockchains, allowing them to remain essentially the same but also have a new range of functionality.
“Bitcoin can stay Bitcoin, Ethereum can stay Ethereum, Ripple can stay Ripple and the banks don’t have to change much - but Cardano provides that necessary bridge that isn’t centralized and isn’t fragile. Rather it’s a large decentralized network and it really ushers in this great new era of interoperability ”
There’s no doubt that if Cardano can succeed in being the Coca-Cola of blockchain interoperability, they will have solidified a place in history as the first to substantially bridge the gap between the crypto world and the legacy system.