Is going after FATF approval really worth killing the decentralized spirit that makes crypto so disruptive? Vietnam’s new Law on Digital Technology Industry is designed to create an environment where innovation can flourish and FDI is directed. In reality, it could unknowingly suppress the very ecosystem that it aims to encourage. What we’re discussing here are unintended consequences on a potentially cataclysmic scale.
The fact that the government seems beholden to looking beyond or washing away the stain of crypto past scams such as BitMiner and Million Smiles. Who can blame them? Because those schemes, which took advantage of individuals’ hopes and naiveté, were just plain bad. Throwing the baby out with the bathwater isn’t the answer either. We can’t put a regulatory ball and chain on an entire ecosystem that is actively contributing to innovation and financial inclusion.
Innovation Drowned In Red Tape?
None of us are questioning the merits of wanting to fight against money laundering. None of us want crypto to turn into a criminal’s best friend. How far is too far? Unreasonably aggressive AML/KYC requirements serve as huge barriers to entry. This is particularly challenging for early-stage, smaller startups and developers who do not have the bandwidth to wade through challenging regulatory environments.
Think about it: imagine you're a Vietnamese developer with a brilliant idea for a decentralized finance (DeFi) application. You’re brilliant, you’re innovative but you’re up against some of the biggest players already in the game with deep pockets and in-house compliance teams. Now picture having to traverse this Herculean labyrinth of regulations which mandate extensive KYC for each and every user. Now your bold, creative, award-winning project becomes a compliance headache. You’re instead driven to allocate much more time and money on AML than you are on creating real solutions for your users. Is that truly what Vietnam wants to be promoting and pushing for?
This isn't just about Vietnam. Look at the broader picture. The internet was so revolutionary because it was permissionless. Just imagine if every website, every email, was conditional upon a government ID. It's absurd! Over-regulation risks making crypto no more than an extension of today’s financial system, another vehicle of centralized control.
Decentralization's Silent Demise?
The opportunities that crypto is opening up to the world are amazing! It gives power back to the person and breaks down the walls of old finance. Overly stringent AML/KYC requirements can destroy this foundational principle. They prefer centralized exchanges and services that can more readily meet compliance requirements. At the same time, they move decentralized, more equitable alternatives to the sidelines.
- Centralized Exchanges: Can afford robust KYC/AML infrastructure.
- Decentralized Exchanges (DEXs): Struggle to implement KYC without compromising user privacy and decentralization.
This creates a chilling effect. Folks take fewer risks on decentralized solutions when they are aware they will have to endure even more scrutiny and regulatory hurdles. It’s a long march to the centralization, wrapped in the veneer of compliance.
Financial Inclusion's Broken Promise?
These applications of crypto can bring powerful financial services to Vietnams unbanked and underbanked hoards. It is particularly well-positioned to improve access in rural communities. Yet what occurs when these same populations have little to no way of providing the required documentation to meet strict KYC regulations.
Instantly, crypto becomes just another tool that disenfranchises the very people it should be empowering. This isn’t only theoretical – it’s an immediate danger. Over a billion people in developing countries do not have any formal identification. Through strict KYC requirements, Vietnam risks establishing a system that favors the rich and marginalizes those most in need.
The Million Smiles scam preyed on people's spiritual beliefs. And while AML is certainly a laudable goal, are we positive the AML requirements will save us from these types of scams again in the future? What if the scammers are just very good at covering themselves behind “corporate veils” of shell companies? Otherwise the AML compliance will just further disadvantage the good guys, driving more honest businesses into difficulty complying.
A Better Path Forward?
So, what's the solution? Should Vietnam abandon AML/KYC compliance altogether? Of course not. There are other paths that might repeal aspects of the burdensome status quo without weighing as heavily on innovation and decentralization.
- Risk-Based Approach: Focus resources on high-risk transactions and activities, rather than imposing blanket KYC requirements on all users.
- Tiered KYC: Implement different levels of KYC based on the transaction amount and risk profile.
- Privacy-Enhancing Technologies: Explore the use of technologies like zero-knowledge proofs and verifiable credentials to protect user privacy while still complying with AML regulations.
As a blockchain journalist and editor, I’ve witnessed the myriad ways in which countries around the world are attempting to address these questions in practice. Others are taking a less dogmatic approach, doubling down on the innovation while advancing legislative efforts to address real concerns about crime and anti-money laundering. At the same time, others are going the much more heavy-handed route, focusing on compliance at all costs.
Vietnam has a choice to make. Or will it take the easy route out, stifling innovation by treating all actors the same and ignoring user protections? Or will it give in to the siren call of over-regulation, killing off the very innovation ecosystem it’s trying to create? Yet the future of Vietnam’s crypto landscape remains very much in play. Let's hope they choose wisely.
Vietnam's attempt to comply with FATF standards actually going to kill the very innovation it hopes to attract? We need to be asking this question at this present moment. So let’s have this conversation before it’s too late to change course.
