In an effort to limit illicit funding entering the EU, the European Parliament adopted a legislative measure in January 2022 to begin tracing the source of digital assets. This was a significant step toward the integration of cryptocurrency and traditional finance. But what can individual traders and investors do to legitimize their cryptocurrency holdings? The solution is found in Source of Funds checks.

What exactly are Sources of Funds checks?

One of the primary benefits of blockchain technology is its unprecedented traceability. On the other hand, banks are still hesitant to accept your transaction history as proof that your crypto assets were legally obtained and licitly. The reason for this is due to the anonymity of distributed ledger technology. Your bank has yet to learn who owns these cryptocurrency wallets. As a result, they are unable to verify the legitimacy of your assets.

A Source of Funds checks and monitors all transactions entering and exiting a client's wallet and traces the funds' original source. While a bank clerk cannot be expected to go through a customer's activity transaction by transaction, such a report is useful when investors want to legitimize their crypto wealth.

Defying the label of "criminal activity."

Unfortunately, the blockchain industry is still plagued by early stereotypes that link all crypto assets to "criminal activity," regardless of origin. Over the last decade, the space has evolved dramatically, and more investors are turning to cryptocurrency to store their legally obtained wealth. However, when it comes time to turn to a bank for a loan on a new property, these funds are frequently turned down.

While the road to widespread adoption is long and treacherous, solutions such as Source of Funds checks are a step in the right direction. Despite persistent myths, more individuals are investing in cryptocurrency than ever before.

According to The Harris Poll, 25% of all Americans own assets, and one in every five people who have never owned cryptocurrency plans to do so by the end of 2022. This means that banks will need to figure out how to accept cryptocurrency and digital assets as proof of wealth. According to Pawel Aleksander, CIO and Co-founder of Coinfirm, next-level compliance is the way to go.

The crypto and trade finance industries are merging

According to some industry pioneers, such as the founder of DeFi platform Sturdy, Sam Forman, mass acceptance of cryptocurrency and decentralized finance will transform the space for the worse, bringing it closer to the very system it was designed to disrupt. However, a common ground must be established as more people begin to use blockchain and cryptocurrency to store their wealth.

Bridging the gap between crypto and traditional finance is difficult, but Coinfirm and other blockchain regulatory companies are working hard to make it happen. What remains to be seen is when and how traditional financial institutions will begin to embrace the concept of legally acquired crypto wealth on a global scale.

What do you think is the key to bridging the gap between crypto and TradFi? Drop your comments by sharing this article on social media.

Nov 21, 2022
Digital Lifestyle

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