The goal is to monitor and limit the use of cryptocurrencies in illegal activities such as crime and money laundering. The aim is to complement the regulatory framework surrounding the digital asset market, which has often been compared to the Wild West due to its lack of oversight. The envisioned database will serve as a repository of critical information about crypto exchanges, helping regulators monitor and ensure compliance within the cryptosphere.
The origin of the database The aim of this ambitious project is to build a centralized system capable of monitoring various elements of crypto-transactions. The database will not limit itself to recording activities in India alone. Instead, it plans to include a range of information from major international exchanges, such as Binance, Bybit and Kucoin. In doing so, it will provide governments worldwide with a panoramic view of the often opaque world of crypto-asset transactions.
Crypto Tracker
Detailed Surveillance The goal is to monitor everything from wallet balances and peer-to-peer transactions to the Know Your Customer (KYC) information of involved parties. Even the transaction history and the origin and destination of funds could be carefully recorded. This granularity will empower governments to exercise a level of surveillance that has previously been elusive. It could serve as a model for other nations eager to create a more transparent financial landscape. Fighting financial crimes The Indian government suspects that hundreds of crores have been siphoned off through cryptocurrencies to finance illegal activities on the dark web. The database aims to stop these illegal transactions by providing a way to trace the flow of funds with unprecedented clarity. This will be particularly instrumental in identifying and stopping transactions related to terrorist financing and other illegal activities. The Future of Decentralized Wallets So what does this mean for decentralized wallets like MetaMask and TrustWallet, which have built their reputation on user anonymity? According to recent buzz, even these bastions of privacy may have to adapt to the new regulatory environment. KYC procedures may become mandatory for each wallet address. While this may limit some of the decentralized spirit that the crypto community values, it will also serve the larger purpose of reducing financial crime.
Upcoming Implementation The government plans to have the database operational by the end of this financial year.
Liability and Penalties Those who do not adapt to these changes face serious consequences. For example, tax evasion will not only bring back taxes, but also additional financial penalties. With the implementation of this database, transparency will no longer be an elective; it will be mandatory.
The purpose of this exercise appears to be very large in scale. Currently, most international exchanges provide information to law enforcement agencies based on specific requests and court orders. It remains to be seen whether they will cooperate and share databases en masse. These exchanges may argue that they do not fall under the purview of Indian jurisdiction and have no obligation to share data. How this will be tackled remains to be seen.
Project Atlas: similar goals These reports should not be considered in isolation. Project Atlas, a prototype Bitcoin monitoring system, was developed by the Bank for International Settlements (BIS). This system aims to provide authorities with a clearer picture of cryptocurrency activities, both ‘on-chain’ and ‘off-chain’. The system collects data from publicly available crypto ledgers as well as harder-to-obtain data reported by some exchanges and users. While the data provides a rough picture of cryptocurrency activity, it is not necessarily precise due to the anonymous nature of crypto wallets. The project aims to map crypto transfers, which is seen as a monumental step to demystify the often opaque crypto transactions and bring them under regulatory purview.
The bigger picture While immediate impacts focus on improved regulation and potential legal ramifications, it is essential to see the broader implications. The crypto exchange database project and project Atlas signal a massive transformation in the way the world can view and deal with crypto-assets. Both initiatives underline the commitment of global financial watchdogs to establish some transparency and accountability in the crypto domain. This will not only change how transactions take place, but may also affect the evolution of cryptocurrency as a legitimate financial asset.
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