Over the years, cryptocurrency has evolved from being a new invention inviting curiosity to a volatile market. It has since become a widely talked about phenomenon that escapes no minds. Although the federal regulators have largely ignored the crypto world, the tables have now turned. The rise of crypto adoption all over the world puts forth steep competition to the traditional financial system. The digital identity innovation of blockchain technology is revolutionizing the global financial landscape. It is a tamper-proof identity and is easily accessible. It bridges the gap of trust between individuals and institutions. Blockchain technology ensures that the virtual identity of an individual is interoperable and secured. This has gained the attention of the regulators at large as they are looming up.
Crypto Hurdles Placed By Regulators
The regulatory concerns have increased as both recent and established firms continue to delve into cryptocurrency. They attempt to derive maximum profit from the unsurmountable wealth in cryptocurrency into the traditional financial system. It is through quasi-banking services they tend to achieve that while tightening the noose for pre-existing cryptos.
Recently, the central banks in many countries have completely dismissed crypto assets promoting their CBDCs. A CBDC is a central bank digital currency that translates to a virtual form of a fiat currency. Favoring CBDCs over other cryptocurrencies clearly explains their strengthening of monetary oversight on every individual. For example, the People’s Bank of China has banned all cryptocurrencies except their own CBDC. All cryptocurrency-related trading activities are now illegal in China. And the Western regulators are still debating as to under whose dominion the crypto market should be influenced.
The Financial Action Task Force or FATF has released a new set of guidelines on cryptocurrencies and virtual asset providers. FATF has made this adaptation for stablecoins and crypto peer-to-peer transactions. It is in compliance with the Travel Rule published in June 2019. While Europe is one step closer to officially inducting the crypto market into their legal framework, the U.S. has passed an infrastructure bill tightening crypto business rules. The threat posed to the traditional system of trading and finance by the booming crypto market is palpable. It won’t be much longer for the regulators to close in to the DeFi (decentralized finance) market as well.
How can Digital Identity Help?
Today, the world of finance is divided and baffled. On one hand, we’ve got the perennial and privacy-invading monetary surveillance online. On the other hand, lies a secured method of handling private data by closely involving individuals and AI databases monitored by a few corporations and governments.
Digital identity could be considered a killer application of blockchain technology as it proves to be highly efficient in solving user authenticity issues. While blockchain does not promulgate any Utopian ideas, it definitely is an upgrade from the traditional systems. Digital Identity is immutable. It cannot be altered or tampered with by any means, be it a catastrophe or a new authoritative regime.
The digital identities of individuals remain locked and safe and accessible, literally forever. It is also inexpensive and always valid since it cannot be falsified. From availing passports to proving identity at the gym, digital ids could save up time as well as money. However, in order for the world to adopt blockchain technology en masse, more governments must first accept it.
With data protection turning into a bigger problem for regulators, the need for digital identity is now more than ever. The transparency that blockchains offer is efficient in protecting individuals’ data from hackers or any misuse. This is where the self-sovereign decentralized digital identity becomes a crucial tool. A more robust data protection system designed by the crypto industry could remove these regulatory hurdles to a great extent. It could bring in more institutional participants upon meeting the regulatory requirements.