What Is the ‘Travel Rule’ and How Does It Impact Privacy Coins?
The FATF's 'travel rule' requires Virtual Asset Service Providers (VASPs), like exchanges, to obtain and transmit certain information about the originator and beneficiary of a virtual asset transfer. This is a significant challenge for privacy coins, as their core function is to hide this exact information.
Compliance with the travel rule is nearly impossible for fully private transactions, leading to potential regulatory non-compliance for exchanges.
Glossar
The Travel Rule
Regulation ⎊ The Travel Rule, established by the Financial Action Task Force (FATF), mandates that financial institutions, including cryptocurrency exchanges and virtual asset service providers (VASPs), transmit specific information about the originator and beneficiary of transactions exceeding a certain monetary threshold.
Privacy
Anonymity ⎊ Privacy within cryptocurrency and derivatives contexts centers on obscuring the link between transaction origins and identifiable entities, a critical distinction from traditional finance’s reliance on Know Your Customer (KYC) protocols.
Virtual Asset Service Providers
Obligation ⎊ Virtual Asset Service Providers are entities, including centralized exchanges and custodians, that provide services related to the exchange, transfer, or custody of digital assets, subjecting them to stringent Anti-Money Laundering and counter-terrorist financing regulations.
Privacy Features
Anonymity ⎊ Privacy features in cryptocurrency protocols aim to enhance the anonymity of transactions by obscuring the link between a user's identity and their on-chain activity.
Privacy Coins
Asset ⎊ Privacy Coins are cryptocurrencies fundamentally designed with built-in features intended to obscure transaction details, such as amounts, senders, and receivers, from the public ledger, thereby prioritizing transactional confidentiality over radical transparency.