There was an interesting article today on Coindesk.com stating that "moulding Bitcoin into the current regulatory framework simply won’t work". The author, a freelance opinion and news writer is obviously a fan of deregulation and definitely not a big proponent of governments and government oversight.
Thinking that virtual currencies are so revolutionary that governments and regulators simply don't understand the concept might be counterproductive. It is at least a dangerous underestimation of the traditional financial industry and the institutions that regulate it.
It is true that no-one needs a third party to send and receive Bitcoin. You don't need identification or even an email address. Criminals have been using a form of payment that has exactly these properties for centuries. It is known as cash (or "fiat currency" for Bitcoin enthusiasts). Of course there are a great number of rules that regulate dealing in cash. Try to pay for your condo or jewelry in cash and in most countries there will be a report going out to the local financial intelligence unit. There will always be an interest in the seedy side of anything new. The best proof of success of a new technology is if someone comes up with an illegal way to use it.
Should we therefore just give up on controls and regulations of Bitcoin? The writer states "Regulatory bodies can’t fit bitcoin into current regulatory framework. The two are simply not compatible, and that has nothing to do with any libertarian sentiments in the community. It’s fact." I would very much like to know how this "fact" was established. Even if it is a fact, it is most probably Bitcoin that needs to change if it wants to be sustainable. You can't ignore reality and substitute your own, no matter how much you want to.
Know Your Client, as I have applied it in the banking world, simply means that you only deal with customers that you know by name, you know where they live and you know how they earn their money. That way you can predict what they will do with their account after they come on board them and, most importantly, you can make a reasonable assessment of the risk they pose to your company. KYC doesn't end there though. Monitoring accounts for unusual behavior is even more important if you want to properly keep out the bad guys. If you don't perform periodic reviews and re-assess the risks you might as well open your doors and say, "here we are, misuse us"
Giving up on KYC is a terrible idea. The recent mega-fines handed to the big banks show that willful blindness will lead to criminal misuse sooner or later. Regulators will simply make you go away if you think you don't have to play by their rules. Complying in a cost effective and customer friendly way is key. We will move from an point of contact, face-to-face experience to a virtual, continuous, automated one. However, the end result will need to be the same. A thorough understanding of the customer. Not just to keep out the bad guys but to keep the good guys in.
