Consider this a statement you couldn’t have made two years ago: Blockchain technology is progressing, and its potential for compliant, mainstream application is expanding.
“Banks are at a juncture where they view blockchains as a necessary public infrastructure,” Chainalysis co-founder and CEO Jonathan Levin shared with Karen Webster.
Levin emphasized that the growing acceptance of stablecoins marks one of the most significant developments in blockchain usage since Chainalysis was founded in 2014, indicating a monumental shift. Currently, substantial sums, totaling hundreds of billions, are transacted via blockchains while being managed by traditional financial institutions, including banks and U.S. treasuries.
“When we launched in 2014, that concept was nonexistent,” he remarked. “At that time, cryptocurrency was solely associated with blockchains that had intrinsic tokens. Today, various financial instruments, including the U.S. dollar itself, are being positioned on the blockchain.”
However, there are still hurdles in establishing global policy frameworks and enhancing the integration of advancements like artificial intelligence in blockchain ecosystems.
The industry is advocating for a federal regulatory framework for stablecoins, which Levin notes is crucial for building confidence among businesses.
“Without such a framework, financial service firms and international businesses face significant challenges in confidently utilizing stablecoins at a large scale,” he explained, noting that as discussions around crypto regulation progress, the need for clarity, compliance, and insights will intensify.
The Surge of Stablecoins and Evolving Adoption Trends
Founded with the intent to clarify the previously opaque realm of cryptocurrency transactions, Chainalysis now possesses a dataset covering 70 countries, offering extensive insights into cryptocurrency usage, abuse, and regulatory measures over a decade later.
Regarding the rise of stablecoins, tracking actual dollars rather than just crypto tokens has expanded blockchain oversight. This evolution has shifted blockchain from a niche technology to a significant aspect of financial architecture, according to Levin.
“With recent guidance from the OCC and SEC, it’s becoming clear that this is feasible for banks,” he said. “We now monitor not just cryptocurrencies but actual dollars employed for settling financial transactions, remittances, and global payments along these networks.”
Nonetheless, a common critique of cryptocurrency is its purported involvement in illicit activities, with scams and fraud presenting ongoing challenges. Estimates provided by Chainalysis indicate that between $10 billion and $12 billion worth of cryptocurrency transactions each year are associated with scams.
Chainalysis is uniquely equipped to track the entire lifecycle of scam activities, shedding light on how fraudsters acquire tools and market illicit services, Levin explained.
“We’ve aided the government in seizing over $10 billion worth of crypto assets linked to criminal activities,” he noted.
Progress has also been observed in tackling the use of cryptocurrencies and stablecoins for money laundering and other financial crimes.
“The cryptocurrency transactions we can tie to such activities represent a decreasing fraction of the overall activity,” he commented. “Initially, this figure was much higher, but it has consistently fallen below 1% of the transactions we can directly link to these actors.”
This reduction can largely be attributed to enhanced regulations and the improved capacity of blockchain monitoring tools to identify illicit transactions more effectively compared to many conventional financial systems.
Mapping the Future of Blockchain Technology
Amidst the Web3 landscape, one area generating enthusiasm is the potential for AI to enhance cryptocurrency literacy and compliance. Despite blockchain’s strides, prevalent misconceptions regarding the technology’s complexity persist.
“Even proponents of the technology often overlook that cryptocurrency has proven to be a more efficient tool for enterprises in identifying risky behavior, off-boarding problematic clients, and aiding law enforcement in holding scammers accountable,” Levin remarked.
Chainalysis is actively engaged in educating businesses on the workings of blockchain, leveraging AI to elucidate intricate concepts for regulators and industry players.
“I’m very hopeful about AI’s potential to contextualize transactions and concepts for users,” Levin expressed.
“There’s still much to accomplish,” he concluded. “But the advancements are genuine. And the possibilities are vast.”
