Sending huge amounts of money by wire anonymously violates a government rule that says information about who is sending how much to whom must “travel” with that transaction.
But the Travel Rule, as it is called, has been a headache in crypto, where pseudonyms reign (who’s Satoshi Nakamoto again?). Largely by design and to the chagrin of law enforcement, keeping track of personal information isn’t the norm in decentralized, blockchain-based transactions.
That could change with a new crypto organization that’s building a system that would enable its members to comply with Travel Rule requirements, while maintaining a degree of privacy and anonymity valued in crypto.
The Travel Rule Universal Solution Technology, or TRUST, is introducing itself Wednesday with 18 initial members, including major companies like Coinbase, Circle, Anchorage Digital, Gemini and Robinhood.
The Travel Rule requirement is challenging for crypto, since “unlike traditional financial institutions,” crypto companies use “a very decentralized infrastructure that we rely upon in order to track these different transactions,” Coinbase Chief Legal Officer Paul Grewal said. “With permissionless blockchains, there's no way to understand whether a wallet address on the other side of a transaction belongs to a financial institution or to an individual or anybody else.”
TRUST hopes to fix that with a network in which exchanges will be able to verify each other’s addresses before facilitating transactions, Grewal said. (In the United States, transactions of $3,000 or more must comply with the Travel Rule.)
The network also includes two important design features: It will not store “sensitive kinds of customer information, either on the TRUST platform itself or with any kind of third party,” Grewal said. Any information shared on the network will be encrypted, and addresses will be hashed before they are shared, he said.
“We encrypt that transmission, so that only the sender and the recipient have access to it, and then that way, we make sure that no one is interfering with that or gaining unauthorized access in some untoward way,” he said.
The network will make it possible “to first confirm the identity of that wallet address before any information is sent, and then to have the information transmitted peer-to-peer directly from one exchange to the other so that we're not pooling information in any central place that could obviously become a honeypot for nefarious actors,” Grewal said.
Michael Fasanello, director of Training and Regulatory Affairs at the Blockchain Intelligence Group, said that was a real risk.
“That kind of curated personal information is, quite literally, digital gold,” he said, which is why encrypted and decentralized data would be “a critical part of any Travel Rule implementation in digital assets.”
Grewal said the initiative has received “an extraordinarily positive reaction” from FinCEN, the Treasury Department’s financial crimes enforcement body. FinCEN could not be reached for comment ahead of the group’s announcement.
Jonah Crane, a partner at the Klaros Group, said the new organization “should provide a path to compliance for participating firms.” Christine Brown, Robinhood’s COO for crypto, said the new organization shows that “it takes a community of crypto businesses and platforms to work together to find a solution to preserve customer privacy while meeting the legal requirements of the Travel Rule.”
