Cryptocurrency can feel complex. The data, jargon, and pace at which the sector evolves all add to a perception that it is not just difficult to understand, but nigh-on impenetrable unless you’ve majored in computer science.
These issues have caused headaches for property buyers who have generated wealth from cryptocurrency and in turn for practitioners seeking to undertake source-of-funds checks.
And you can see why. Rarely these days does anyone buy and hold Bitcoin. Most portfolios involve multiple assets on multiple blockchains across multiple trading venues. Trading might involve lending, borrowing or staking; funds may even have originated from mining or an airdrop.
More to the point, extreme wealth in crypto – with returns often exceeding 10,000% – can be generated in weeks or months, something almost unheard of in other asset classes.
What does all this mean? And aside from anything else, how do you address potential financial crime risks when presented with such data?
For regulated sectors, validating crypto proceeds is a challenge. In many cases, first-time property buyers are unable to sufficiently explain the origin and cause of their crypto wealth.
Yet blockchain offers a solution. As a digital public ledger, it provides every account, deal, value and timestamp from the start, offering a source-of-funds tool far more rigorous and dependable than fiat currency could offer.
The beauty of this is that it draws almost entirely on publicly available information. And that data is immutable. With enough information, it is possible to retrace the footsteps of a wallet and track its history. And with certain techniques, it is possible to identify counterparties along the way.
There are hundreds of millions of tagged crypto addresses, comprising exchanges, darknet marketplaces, mixers, gambling services and addresses tied to hacks, scams and sanctioned entities.
This information allows for comprehensive ecosystem mapping, sources to be identified and potential red flags examined. And critically, it is clearing the bottleneck for crypto property buyers, presenting opportunities for new business in old sectors. Just mind the jargon.
Henry Burrows is founder and chief executive of Hoptrail
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