Cryptocurrency and the blockchain: What’s the AML risk?
VinciWorks has just added a new module to its course AML 360°. The module explains what is meant by cryptocurrency and blockchain and the compliance challenges they present. The module also explores the money laundering risks that come with cryptocurrency, as well as preventative measures.
What is Cryptocurrency?
Invented in 2008, cryptocurrency takes the principle of cash and makes it digital. Money in a bank account is essentially entries in a database that can’t be changed unless specific conditions are met. In cryptocurrency, a network of peers maintains a complete history of all transactions, and the balance of every account using that cryptocurrency. This secure system is known as the blockchain.
The essence of cryptocurrencies are that they rely on a consensus database of maths, secured by strong cryptography that needs immense computer power to add to the digital ledger where the information is stored, known as the blockchain. They are not secured by trust or fingerprints, or anything vulnerable to human error, but by millions of computers constantly agreeing with each other.
Example of a cryptocurrency: bitcoin
It’s the first and most famous digital currency or cryptocurrency. Owning a bitcoin means you control a secret digital key that proves to anyone on the bitcoin network that a certain amount of bitcoin belongs to you.
What is blockchain?
Blockchain allows digital information to be distributed, but not copied. It is essentially a new type of digital network. Originally designed for bitcoin, its uses are varied and becoming ever more ingrained in business and our everyday life.
Information held on a blockchain is shared and continually reconciled by an entire network of computers. It isn’t stored in any single location, meaning the records are public and easily verifiable. It can’t be corrupted as it is being simultaneously examined by millions of computers.
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