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The Travel Rule Vs. Decentralization: A Moral Paradox?

5 mins
Updated by Leila Stein
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In Brief

  • As the decentralized economy continues to grow, the question of “how much centralization is too much?” continues to persist.
  • Ultimately, a sensible amount of oversight can only be a good thing for the crypto market.
  • Now it is up to those of us in the crypto community to play our part in cutting off the money supply to the illegal economy.
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As the decentralized economy continues to grow, the question of “how much centralization is too much?” continues to persist.

Some argue that decentralization is a conduit for nefarious activity. Others argue that the traditional financial system brings just as many problems, if not more. This piece explores the moral quandary that accompanies wholesale decentralization. 

I like to think of myself as a libertarian, at least in spirit. I like the idea of small government, unfettered private enterprise. Alongside societal outcomes that are determined solely by the will of the free market.

Indeed, something is compelling about a world where individual progress is determined, not by privilege or by accident of birth, but by meritocratic price signals generated by impartial exchanges of value. The “value” in today’s modern economy, being money. 

The Bible provided humankind with the assertion that “money is the root of all evil.” It was Ayn Rand, in her seminal masterpiece Atlas Shrugged, who provided us with the appropriate response.

“So you think that money is the root of all evil? Have you ever asked what is the root of money?” A question that is oddly poignant in the context of this piece. 

Decentralization of money

At its very core, money is a man-made technology that enables individuals to easily and conveniently exchange value. Having enough of it enables those individuals to act as they deem fit. Ergo, money enables freedom of choice. 

The current iteration of the monetary system is highly centralized, and as we all know, central authority begets rules. Rules are inherently designed to curtail freedom of choice.

So given that the centralized economy is a rules-based enterprise that limits freedom of choice by its very nature, the idea of decentralization of money, such as cryptocurrency, can be incredibly attractive to many people. 

A truly decentralized monetary system would allow everyone equal and unbiased access to the financial system.

It would help to free us from onerous bank charges, bypass discriminatory lending and biased credit assessments. It would insulate us against inflation, and protect our goods and services from the devaluing effects of trade tariffs. 

So, if money is the ultimate technological enabler for freedom of choice, and decentralization serves to protect that freedom from the megalomania of the central planners, does that not make cryptocurrency the ultimate enabler of true freedom?

This being the case, is there any moral crusade as high in virtue or as deserving of praise than the attainment of impartial and equitable freedom for all? The reality, it seems, is not without a sense of irony. 

The darker side of decentralization

Gonzo journalist Hunter S. Thompson postulated that “for every instance of beauty,  many souls must be trampled.”

This statement would be comical in its cynicism were it not because it is, sadly, all too accurate. 

In 2019, around 2% of all crypto transaction volume was connected to illicit activity, which sounds negligible, but in real money, that equates to just over $20 billion worth of transfers. To put it into perspective, that’s about equal to the combined GDP of Bermuda, Liechtenstein, and Monaco.

In addition, between 2019 and 2020, the number of criminal proceeds in bitcoin that passed through privacy wallets rose from 2% to 13%. This makes it even harder for authorities to track than it already was. 

This elusive cryptocurrency strategy is further evidenced by recent FinCEN reports that indicate trafficking groups are increasingly using alternative payment mechanisms, like virtual currency, to conduct their business.

U.S. Homeland Security investigations have also uncovered gangs of human traffickers who conduct the majority of their business using bitcoin.

A 2020 Department of Justice report noted multiple terror groups were laundering money through complex cryptocurrency transactions and soliciting anonymous cryptocurrency donations from around the world. 

As if this isn’t enough, the illegal drugs trade is, directly and indirectly, responsible for almost a million deaths annually. It is not difficult to observe first-hand the impact of this on our communities through addiction and related gang violence. 

In my hometown of London, many young people are still being killed every year as a result of knife crime linked to drug gangs. Drug-related gang violence remains at epidemic levels across much of the western world. 

Enter the travel rule

Great efforts have been made to eradicate this “dirty money” from the financial system. The fact that the volume of cryptocurrency transactions linked to illegal activity has almost quadrupled since 2017 is a testament to the excellent work being done by banks and regulators alike in the fiat world. However, the problems persist.

Now it is up to those of us in the crypto community to play our part in cutting off the money supply to the illegal economy. 

Legislation, such as the travel rule, serves to erode the anonymity that illegal enterprises require in order to conduct their business and evade detection. It requires firms to transmit verified details about the senders and recipients of digital assets with every value transfer. 

As far back as the prohibition era, the trail of illegal money has helped to put criminals behind bars. Notorious crime boss Al Capone was jailed for tax evasion in 1931.

The travel rule helps to provide authorities with the information they need to follow the money back to the source. This stopped illegal operations such as drug cartels, human trafficking rings, and terrorist financing networks. 

The decentralizaition issue

The decentralized economy, in some ways, is caught between a rock and a hard place. Wholesale decentralization can open doors for nefarious actors to profit from their criminal enterprises.

However, increased oversight and control could unnecessarily and unfairly prevent law-abiding citizens from accessing the decentralized economy. As a result, stifling growth and innovation along the way. 

The opportunities presented by the decentralized economy are becoming increasingly hard for mainstream financial institutions to ignore, but so are the red flags.

These institutions are among the most heavily regulated and scrutinized corporations in the world. The consequences can be catastrophic if it is shown that they had any part in the transit of illegal money.

As long as the crypto market presents a heightened financial crime risk, the financial mainstream will continue to find it difficult to justify the risks of wholesale participation. 

The relative infancy of the crypto market precludes us from having a blueprint from which to draw guidance. As a result, the methods employed within the traditional financial markets aren’t always relevant in the crypto world.

In essence, we’re all kind of just making it up as we go along. However, as is often the case, there is plenty of middle ground. 

Ultimately, a sensible amount of oversight can only be a good thing for the crypto market. Adopting elements of centralization such as the travel rule will help to clean up our market. It will make it easier for mainstream financial institutions to participate.

That kind of mainstream adoption could help turbo-charge the decentralized economy into the next phase of its expansion. 


In compliance with the Trust Project guidelines, this opinion article presents the author’s perspective and may not necessarily reflect the views of BeInCrypto. BeInCrypto remains committed to transparent reporting and upholding the highest standards of journalism. Readers are advised to verify information independently and consult with a professional before making decisions based on this content.

Mark Hope , FINXFLO Chief Compliance Officer
Mark has over 20 years of experience in the financial markets industry, half of which was dedicated to direct frontline compliance at top-tier institutions such as Barclays...