Cryptocurrencies no key to financial secrecy, says expert
As a decentralized transaction medium, one of the main benefits offered by cryptocurrencies is to financial secrecy. But according to one finance expert, those who get into crypto for that purpose will likely be sorely disappointed.
“If that’s the end game, don’t bother with bitcoin, or its counterparts,” wrote Ingo Walter, professor emeritus of finance at New York University’s Stern School of Business, in a column for MarketWatch.
The traditional gold standard for financial secrecy, Walter wrote, was held by highly reputable financial institutions that work beyond national enforcement jurisdictions. Such companies, he added, are based in politically and economically stable nations with a solid wall of secrecy laws and blocking statutes.
But new windows into international transactions, including those opened in the US by the 2010 Foreign Account Tax Compliance Act (FATCA) and a 2015 bilateral tax-evasion deal with Switzerland, have made fee-for-secrecy institutions less than airtight. That has pushed “secrecy” addicts” to take their chances in more questionable venues, he argued.
This is where cryptocurrencies come in. The distributed-ledger foundation they operate on eliminates the need for financial intermediaries in transactions between parties. Encryptions in wallets add a layer of anonymity, and the largely unregulated nature of exchanges provides a shadow in which crypto-based transactions can be concealed. And the menu of possible crypto assets has widened because of the proliferation of initial coin offerings.
But Walter noted that new adopters that are taken in by fraudulent ICOs can lose money as well as information to scammers. And aside from being vulnerable to pump-and-dump market manipulation and “spoofing” during trading, cryptocurrency exchanges have also been targeted and successfully breached by cyber thieves.
“But the real show-stopper is the prospect of linking ‘anonymous’ cryptowallets with real identities,” he said. “If prying eyes can make the connection, which some think is not that difficult, it’s all over for crypto as a financial secrecy tool. Exchanges can be arm-twisted to cooperate, and there’s already a cottage industry of consultants to help the enforcers make the connection.”
