In brief
- Government authorities and regulators take a dim view of the crypto industry's self-regulation, a survey found.
- Concerns about the use of crypto for money laundering, drug purchase, and terror financing were high, but crypto officials say such concerns are inflated.
- However, all survey respondents expect cryptocurrency usage to rise in the next five years.
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A survey published Tuesday by the Royal United Service Institute (RUSI), UK’s oldest defense and security think tank, found banks, governments, and crypto executives share vastly different opinions about the self-regulation of the cryptocurrency industry.
According to the report, 63% of banks and 56% of governments saw digital currencies as a risk, while only 9% of people in the cryptocurrency sector agreed. The latter group was also regarded to be “much more confident” about their own tools and risk management policies than respondents from traditional sectors.
But the confidence over such self-regulation may be inflated. “The crypto industry appears to have a great amount of confidence in their own abilities to counter and detect risk, whereas the government doesn’t have nearly as much faith,” said Kayla Izenman, a research analyst with RUSI.
The survey—which recorded 566 unique responses from regulators, intelligence units, and crypto industry officials—noted criminal activity and usage of crypto was a concern across all respondents, with over 70% voting for this aspect.
Such concerns included the risk of money laundering via cryptocurrencies and the purchase of illicit materials on the dark web (84% each), the use of crypto for funding terrorist financing (79%) and human trafficking (76%), and even initial coin offerings (75%).
But there was a disconnect in these concerns. Government officials and regulators viewed such risks highly, while the crypto industry downplayed any long-lasting effects.
In fact, crypto industry officials noted that crypto transactions offered more transparency than fiat and were, hence, more beneficial in terms of security (a point that financial institutions and government disagreed with).
The survey found that cryptocurrency professionals were largely aware of the potential risks in the nascent industry, compared to respondents from media, political and traditional backgrounds who were less aware.
However, traditional institutions also showed a far higher likelihood (78%) to seek guidance on crypto topics from non-governmental organizations and blockchain associations than from governments, the survey noted.
As a silver lining, the respondents unanimously agreed that the use of cryptocurrencies is expected to rise in the next five years. But it remains a concern.
“All sectors agree that the use of cryptocurrency is on the rise, but we know there’s no clear consensus on domestic regulatory action,” said Izenman. “This risks opening the door to illicit activities.”
The lack of laws and regulation has led to crypto businesses like exchanges and wallets to largely self-regulate the industry to protect their users—such as liaising with each other whenever an exchange hack occurs or if fraudulently gained crypto is making the rounds.
And while it has worked so far—such as last week’s $150 million hack of a crypto exchange showed—the regulators don’t seem convinced just yet.