Solving the ‘Sunrise Issue’ is the key to unlocking crypto mass adoption

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We have all been there. You see some­thing, hear some­thing, or feel some­thing, and want to share that feel­ing or obser­va­tion with some­one else. Do you pick up the phone? Send over a text? Record a voice note?

Humans thrive in our shared expe­ri­ences: a cap­ti­vat­ing con­cert, the win­ning goal of a sports match, wak­ing up to watch the sun­rise. There’s some­thing ful­fill­ing about hav­ing an expe­ri­ence and being able to share it with some­one in real time. And due to tech­nol­o­gy, we can do that, even if anoth­er per­son, call them our coun­ter­part, is halfway across the world.

So why would­n’t we expect the same lev­el of seam­less com­mu­ni­ca­tion and col­lab­o­ra­tion across an indus­try built around that very idea — total inter­con­nec­tiv­i­ty and a glob­al reach? Cryp­to was built to democ­ra­tize access to finance, com­mu­ni­ty and tech­nol­o­gy. And yet, in the cur­rent reg­u­la­to­ry cli­mate, as gov­ern­ment agen­cies tight­en their grasp on how cus­tomers trans­act via the Coin­bas­es and Binances of the world, we are expe­ri­enc­ing grow­ing delays amid rapid­ly expand­ing sanc­tions that are caus­ing a major break into cryp­to’s connectivity. 

As a result, cryp­to exchanges are expe­ri­enc­ing a detri­men­tal road­block when attempt­ing to com­ply (and process com­pli­ant trans­ac­tions between each oth­er) amid glob­al reg­u­la­tion. What’s hold­ing our indus­try back in a time when we need clear com­pli­ant solu­tions? Meet the Sun­rise Issue.

The current state of VASPs — and the Travel Rule

If you have been fol­low­ing cryp­to’s reg­u­la­to­ry land­scape in the last three years, you’ve like­ly come across the term “VASP,” which stands for Vir­tu­al Asset Ser­vice Provider, a term born from the FATF (Finan­cial Action Task Force). 

Beyond craft­ing acronyms, the FATF acts as a glob­al watch­dog agency for pre­vent­ing mon­ey laun­der­ing in finan­cial trans­ac­tions. The FATF is respon­si­ble for the Trav­el Rule, a finan­cial reg­u­la­tion that requires banks, cryp­to exchanges and oth­er cryp­to play­ers, as of 2020, to share data on par­tic­i­pants (cus­tomers) in finan­cial exchanges exceed­ing 1,000 USD/EUR. Some coun­tries have even reduced the thresh­old to zero. What con­sti­tutes a VASP? Broad­ly speak­ing, a VASP is a cryp­tocur­ren­cy exchange, liq­uid­i­ty provider or cus­to­di­an that can be cen­tral­ized or decentralized.

Relat­ed: FATF includes DeFi in guid­ance for cryp­to ser­vice providers

The sunrise is for everyone, right?

So here’s the issue and why it’s so detri­men­tal to progress. Com­pli­ance needs to be seam­less and simul­ta­ne­ous. From a cryp­to com­pli­ance stand­point, let’s break down what that means, and how when a VASP posts a request for infor­ma­tion on trans­act­ing cus­tomers to anoth­er VASP, issues can arise. VASP “A” (a cryp­to exchange) oper­ates in a juris­dic­tion where Trav­el Rule com­pli­ance is required. Accord­ing to the “Sun­rise Issue” anal­o­gy, VASP A can see the sun­rise in their loca­tion and wants the abil­i­ty to talk about it (exchange cus­tomer details) with a coun­ter­part who lives in a dif­fer­ent place, where the sun has­n’t yet come up (VASP B). VASP “B” is locat­ed where the Trav­el Rule isn’t yet a reg­u­la­to­ry oblig­a­tion. VASP B is not only in a dif­fer­ent “time zone,” it has dif­fer­ent rules alto­geth­er. How to solve the dilem­ma when there is one com­pli­ant and one non-com­pli­ant VASP?

VASP A (a cryp­to exchange where mon­ey is being deposit­ed or sent) sends an “infor­ma­tion request” to VASP B. To return to the Sun­rise anal­o­gy again, VASP A wants to talk to VASP B about their expe­ri­ence watch­ing the sun­rise. VASP A posts a request for this infor­ma­tion from VASP B, who doesn’t respond because the sun has not yet come up where they are. It could be tomor­row, it could be a year, but for now, there is a mis­align­ment that is lead­ing to poten­tial non-com­pli­ance for VASP A, which will still be held account­able to its spe­cif­ic reg­u­la­tors. The Sun­rise Issue strikes.

Relat­ed: DeFi: Who, what and how to reg­u­late in a bor­der­less, code-gov­erned world?

Getting real about regulation

Over the past few years, plat­forms across cryp­to and DeFi have been hard at work build­ing com­pli­ant solu­tions to gov­ern­ment reg­u­la­tions like the Trav­el Rule. Ide­al­ly, these solu­tions allow VASPs to oper­ate with no inter­rup­tion to how their cus­tomers would nor­mal­ly transact. 

The truth is that reg­u­la­tion is no longer an “if” in cryp­to. It’s here — and it’s grow­ing. And though the knee-jerk reac­tion among some in our indus­try is to vil­lainize reg­u­la­tion, com­pli­ance pro­tects cus­tomers and exchanges and is put in place to pro­tect against mali­cious intent and bad actors who set the indus­try back in our jour­ney towards glob­al mass adop­tion. This need is real: accord­ing to TechCrunch, cryp­to loss­es have spiked 695% on year fol­low­ing mas­sive hacks, like last mon­th’s $625 mil­lion Axie Infinity/Ronin Net­work exploit. The trick is, how do we remain com­pli­ant, pro­tect our­selves and not give up the lev­el of pseu­do-anonymi­ty and iden­ti­ty that many of us turned to cryp­to to expe­ri­ence in the first place?

Relat­ed: The loss of pri­va­cy: Why we must fight for a decen­tral­ized future

How to solve the Sunrise Issue

The answer is com­pli­ant solu­tions that solve the Trav­el Rule and the Sun­rise Issue. If we are going to be a com­pli­ant indus­try, we must ensure that reg­u­la­tion is pos­si­ble (and fric­tion­less) for all involved par­ties. For that to be pos­si­ble, VASPs must be able to process trans­ac­tions — and trans­mit the nec­es­sary cus­tomer data — between each oth­er, regard­less of whether one VASP is Trav­el Rule-com­pli­ant and the oth­er is not quite yet adher­ing to reg­u­la­tions of their juris­dic­tion because of stag­gered implementation.

How do we get there? Solu­tions like Verisope, a Trav­el Rule solu­tion and decen­tral­ized dis­cov­ery P2P data trans­mis­sion net­work just launched by Shyft Net­work per­mit a “his­toric look­back” on any cryp­to trans­ac­tion involv­ing a VASP broad­cast. This fea­ture allows VASPs to obtain infor­ma­tion on any trans­ac­tion regard­less of when it hap­pened, even before the receiv­ing VASP signed on with Veriscope or anoth­er Trav­el Rule solu­tion. As a new VASP joins, they receive these his­tor­i­cal data requests and can respond with the nec­es­sary infor­ma­tion, pre­vent­ing the indus­try road­block (aka the Sun­rise Issue) between com­pli­ant and non-com­pli­ant VASPs.

Crypto deserves better

If there’s ever been a need to democ­ra­tize access to com­pli­ance while pro­tect­ing cus­tomer iden­ti­ty on-chain, that time is now. In late March, we woke up to the news that the Euro­pean Par­lia­ment had vot­ed on imple­ment­ing new sanc­tions that would require KYC (know-your-cus­tomer) com­pli­ance on pri­vate, unhost­ed cryp­to wal­lets. Reg­u­la­tion will soon touch every juris­dic­tion across the globe and every per­son with­in each juris­dic­tion. If exchanges and cus­tomers want to trans­act (and host process trans­ac­tions) legal­ly, we will need to be able to share key infor­ma­tion for cur­rent, past and ongo­ing transactions.

Shared expe­ri­ences and the abil­i­ty to com­mu­ni­cate are ulti­mate­ly what make us human. If cryp­to is here to help improve finance and human­i­ty, we deserve the best solu­tions to the most chal­leng­ing prob­lems. Let’s be ready.

The views, thoughts and opin­ions expressed here are the author’s alone and do not nec­es­sar­i­ly reflect or rep­re­sent the views and opin­ions of Cointelegraph.

Joseph Wein­berg was an ear­ly investor in Bit­coin in 2010 and direc­tor at Coin­set­ter until its acqui­si­tion by Krak­en in 2016. He knows his way around the cryp­tocur­ren­cy world. Cur­rent­ly, Wein­berg is the co-founder of Shyft Net­work, the blockchain-based trust net­work that reclaims trust, cred­i­bil­i­ty and iden­ti­ty. Pas­sion­ate about advanc­ing the mass adop­tion of cryp­to and blockchain, he also serves as an advi­sor to the OECD and the Finan­cial Sta­bil­i­ty Board as well as gov­ern­ments and reg­u­la­to­ry bod­ies globally. 

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