Bitcoin intelligence provider, Elliptic, is developing a program to monitor the activity of bitcoin-based banking clients and detect illicit or suspicious activity. Elliptic provides tools for complying with know-your-customer (KYC), anti-money laundering (AML), and Bank Secrecy Act (BSA) regulations. The new tool will be released in partnership with California-based Silvergate Bank, which has over thirty bitcoin-related clients. Silvergate is part of a small but growing community of U.S. banks that do business with bitcoin. For many banks, especially large institutional ones, the risks of bitcoin far outweigh potential benefits, but Elliptic’s software could quell these concerns.
According to CoinDesk, “The platform will help banks find suspicious bitcoin activity, allowing them to reduce risk assessment costs for current and potential customers, while demonstrating to regulators that there are internal safeguards in place to weed out bad actors.” The platform analyzes each blockchain transaction for nefarious activity and provides a rating based on its findings. Elliptic and Silvergate insist that the technology will not micromanage client business, but will provide a holistic view of client activity to identify potential areas for concern.
Elliptic’s CEO, James Smith, also notes that the platform is a step forward in making bitcoin-related activity mainstream. Increased oversight should provide a decreased risk level for banks that were hesitant to participate in cryptocurrency business in the past. Elliptic’s platform could emerge as an essential component of, and catalyst for, bitcoin business.
It is also important to note that Silvergate is undertaking this venture voluntarily, and free of any regulatory pressure. According to CoinDesk, Ben Reynolds, vice president of business development and digital banking at Silvergate, notes that Silvergate is “being proactive to advance the legitimacy, credibility, and sustainability of the bitcoin industry and pushback on negative stereotypes.”
In an environment where many people may be concerned about the risks of digital currency, it seems Elliptic is taking a step in the right direction to minimize risk and help promote adoption. Consumers’ Research also holds the view that the digital currency economy must be proactive in protecting consumers and preventing bad actors. For more on these efforts, read CR’s white paper on consumer protection guiding principles in the digital currency economy.
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