There’s just four months to go before crypto exchanges will need to identify both parties to every transaction. Few are ready.
Asian blockchain startup CoolBitX has raised $16.75 million in series B funding to help exchanges comply with the ‘travel rule’ via its Sygna Bridge solution.
The Financial Action Task Force has set a deadline of June this year for crypto exchanges to comply with the new rule.
It requires exchanges to identify both parties to a crypto transaction before it occurs.
At present, if you want to fire 1 BTC from (for example) Coinbase to your Gran’s account on Binance, you simply type in the address and it happens.
But from June, Coinbase will need to find out from Binance the exact identity of your Gran before allowing the transaction to happen.
The issue is that most exchanges have no way of communicating this information short of sending an email and the functionality needs to be bolted on to existing infrastructure across a million different exchanges and systems.
SWIFT for crypto
Michael Ou from CoolBitX told Micky their Sygna Bridge solution is the answer.
“In this API you can enter the counterparty exchange’s Sygna code, which is the equivalent of a SWIFT code … and know what kind of counterparty exchange you’re dealing with.
“Coinbase receive (a message) through this service, and they will verify the information first.
“If I tick all the boxes I decrypt a second layer of information that is the originator name , ID number, date of birth etc … and run it through blacklist to see if the person is a terrorist or drug lord.”
Once both sides have verified neither party is on the blacklist they “fulfill the travel rule”.
Everyone has to get on board
Now the obvious problem with this solution is that it means everyone has to sign up and use the CoolBitX solution.
“Yeah, pretty much like SWIFT it only works for the participating exchanges within the network,” he said.
There are a number of providers working on their own competing solutions including Shyft Network and Cipher Trace.
David Gold, CEO of Dapix recently told Micky that his Foundation for Interwallet Operability will also provide a fix for the issue, even though it had not initially been designed to do so.
Ou said it might be possible to have interoperability between similar systems but “ideally if it’s just one it makes everybody’s life easier.”
CoolBitX has already signed up 11 exchanges to test or implement including Sygna Bridge SBI VC Trade, Coincheck, BitPoint and BitSonic.
The series B funding is in addition to $13 million secured in series A funding and $500,000 in seed funding.