These days Government is trying hard to bring some regulations to the crypto industry to make sure there is no Money laundering. It is a huge debate if we have to talk about the need for regulations. Some people who are fond of decentralization might think that regulation should not be done because it creates a lot of restrictions. Some people might think that it is important because it adds an extra layer of security on top of crypto transactions.
Decentralization is one of the biggest advantages we have with cryptocurrencies. But with decentralization, there will also be problems where people can have different thoughts and some people might even think of doing bad things without any identity. Some level of centralization is required in specific areas to make sure there are proper regulations imposed. Otherwise, it is hard to handle funds in the right manner or take preventive measure.
Anti Money Laundering
After cryptocurrencies became popular, there have been many cases where people used them for money laundering. Some of the government take this very seriously and they try to impose some restrictions on the transactions. They also make sure all the transactions are visible to the government. This is to prevent money laundering from happening. Most of the times crypto transactions are kept anonymous as there is no centralized party or gateway that can justify or provide more details about a particular transaction. This is why bringing regulations can help in anti-money laundering.
Even in the future, it cannot be 100% possible to impose regulations and prevent money laundering. There will always be channels for anonymous transactions that cannot be traced or tracked. But some exchanges help in these aspects where they give their exchange transaction data to the government and if there are specific transfers that can be money laundering, governments and authorities take action.
Some countries take money laundering very serious because they think financial crimes are the biggest and most dangerous among the other crimes that usually happen. Even some countries have a specific department that handles financial crimes and they take action seriously.
No possibility for on-chain regulations
With the way blockchain and cryptocurrencies are designed, there is no possibility of having regulations set inside the blockchain itself to identify such crimes and take action. Some blockchains can have restrictions to some extent. But there are private wallets where transactions happen and there is no way to trace them. The future of cryptocurrencies are also going to be this way and it can be hard to trace all the transactions happening. Even if the government finds a way to track a particular wallet, it cannot freeze it like how it freezes a bank account.
Freezing a wallet and making transactions not happen from a specific wallet are all not options because it is against decentralization and against how blockchains and wallets work. There is no facility on the chain for this but maybe some blockchains might have support for this but in an ideal scenario even if the authorities find out a wallet is involved in huge financial crimes, nothing can be done to prevent it.
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