Cryptoassets and cryptocurrencies may ‘feel’ new to many but they have been around for over a decade, with arguably the most notorious, Bitcoin, initially released in 2009 as a peer to peer electronic cash system. With the success of Bitcoin, there are now well over 10,000 different cryptocurrencies in existence (as of April 2021) with an estimated 106 million users worldwide and a market cap of over $1.6tn. Could cryptocurrency and digital assets revolutionise the way we pay for goods and services in the 21st century?
The Technology behind it all – Blockchain explained?
Cryptocurrencies are split into 2 main categories; Coins (bitcoin and altcoin) & tokens. Each represents themselves as a decentralised digital version of currency, which means they are not controlled by a central bank or state entity (i.e. government backed treasury). This is achieved through a new type of technology – blockchain.
A blockchain is a shared ledger that facilitates the process of recording transactions and tracking assets across a network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk for alterations and cutting costs for all involved.
Why is blockchain important? Businesses run on information. The faster this information is received and the more accurate it is, the better. Blockchain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members. A blockchain network can track orders, payments, accounts, production and much more.
The difference with Altcoin
Altcoins refer to any coins which are not Bitcoin. Most currencies listed in this category have a limited/fixed supply of coins to essentially reinforce the perceived value. Though most altcoins use the same basic framework as bitcoin, each system can differ from the next, as they’re created for different purposes and applications. These coins are exchanged for goods or a particular service. As a rule of thumb these cryptocurrencies generally use their own blockchain.
Tokens are created off the back of an existing blockchain and given out through an initial coin offering (ICO), similar to stock offerings. These are represented as: Value tokens, Security tokens and utility tokens. They are similar to a fiat currency like USD or GBP which themselves are not of value but instead represent value, with the key difference being fiat currencies are backed by a central bank or federal reserve whereas cryptos are not.
Disruptive coins and their risk
With decentralising currency and the removal of third-party guarantors from payments, it is much easier to conceal one’s identity. Often hiding personal information becomes normal practice. This has given a large scope of opportunity to make payments secretly and in turn, the crypto space has become subject to illicit movement of money from those who would rather operate anonymously.
Anti Money Laundering compliance across the cryptocurrency industry is becoming compulsory. In order to comply with the rules and regulations set out by the Financial Conduct Authority (FCA), effective know your customer (KYC) procedures need to be implemented. Managing your KYC process can come with an abundance of challenges from costly third party services to multiple questions around data security.
Contineo FRS can help solve your security challenges with an all encompassing automated solution FCGuard while protecting your system from financial criminals. Speed up your onboarding and customer checks process to make sure your systems work smarter for you, all whilst staying compliant with AML regulations.