Given the current Travel Rule implementation, it is time to rethink how the crypto industry approaches compliance. One of the most promising solutions is creating a public database of critical service wallets. By requiring VASPs to register and update their wallet addresses, this solution could provide a much-needed layer of transparency and accountability that the current system lacks.

Standardising Compliance Data Across the Industry

A public database would serve as a source of truth for VASPs and reliable information from third-party sources, allowing entities to confirm each other’s compliance status.

By mandating all VASPs to register their crypto wallets in this database, and keep them updated, it would be much easier for entities to:

• Confirm that they are dealing with a complying party.
• Reduce the possibility of unintentionally sending funds to an unregulated or high-risk service.
• Simplify the process of complying with the Travel Rule.

This would result in a more efficient and reliable compliance procedure, lowering the development burden and improving data quality.

Ensuring Data Quality and Accuracy

A public database, or one that is accessible to registered entities, would force VASPs to update their crypto wallets regularly and produce verification documents. This approach would keep the data accurate and up to date.

Making this information publicly available enables third-party Travel Rule solutions to use a uniform dataset, decreasing discrepancies and improving overall data quality.

Improving Security and Reducing Fraud

One advantage of a public database is that it allows VASPs to identify bad actors. Entities can avoid connecting with questionable or unregulated wallets if they know which wallet address belongs to a confirmed VASP. This minimises the likelihood of funds being sent to unlawful services, improving the ecosystem security.

Furthermore, by making wallet information public, the sector will get more insight into the flow of assets. This would enable regulators and VASPs to discover suspect patterns and act more quickly to prevent money laundering or other financial crimes.

Mandatory Registration for Full Compliance

To be effective, the crypto Travel Rule needs VASPs to register their info and crypto wallet addresses in a public database. Noncompliance should result in sanctions or restrictions, such as being prohibited from interacting with complying VASPs.

This approach would generate a network effect, in which VASPs would be motivated to join the database to remain competitive. As more VASPs participate, the database’s value increases, making it easier for compliant organisations to conduct business while evading regulatory scrutiny.

Implementation Challenges and Considerations

While the benefits are obvious, there are some challenges to consider:

• Data Privacy: The database must balance transparency and privacy, ensuring that sensitive information is not disclosed to hostile parties.
• Global Coordination: Regulators from various jurisdictions need to work together to ensure the database is widely accepted.
• Ongoing Maintenance: To remain accurate and effective, the database needs to be updated and audited regularly.
• Competitiveness: Providers and crypto compliance solutions will continue to need to perfect and offer new features for their products to remain relevant, as data quality is no longer an issue. Naturally, we might argue that it is unfair, but what matters is increasing cryptocurrency trust and protecting consumers.

Conclusion

With a public database, of critical service wallets, the industry may overcome many of the current Travel Rule’s deficiencies. This approach would help VASPs comply with rules more quickly, lower the danger of illegal conduct, and promote a more transparent crypto economy.

For VALEGA Chain Analytics user protection is a priority. For years we have been compiling data, and achieving excellent service coverage but to ensure maximum quality, the creation of the public database is a need, even if that means that more competitors will emerge. Competition is healthy.

It is time for regulators and industry leaders to collaborate and execute this solution. Only by taking a proactive approach can we ensure that the cryptocurrency business evolves in a way that is consistent with the global financial system while retaining the innovative spirit that distinguishes it.

If you want to know more about the current travel rule problems, please read the article Why the Current Crypto Travel Rule Falls Short.