Bank for International Settlements Unveils Plan to Rate Your Bitcoin with a Score
The Bank for International Settlements (BIS) published a bulletin in which it proposes to combat money laundering in the bitcoin (BTC) and cryptocurrency ecosystem by creating a “compliance score” that rates each digital currency or stablecoin balance based on its transaction history. The document, shared by the entity associated with 63 central banks and monetary authorities from different parts of the world, proposes to use the transparency of cryptocurrency networks to identify and isolate funds linked to illicit activities, blocking the change to fiat money on exchanges and banks.
Although the document clarifies that the opinions belong to the authors and not necessarily to the BIS, the initiative states that traditional anti-money laundering methods, which rely on intermediaries such as banks, fail in the decentralized world of bitcoin and cryptocurrencies. Instead, the authors presented a system that leverages the public transaction ledger to assign a rating to digital assets. This score would determine whether the funds are “clean” or if they are “contaminated” by their contact with wallets of dubious origin.
The move would put the onus on “off-ramps,” forcing exchanges, stablecoin issuers, and banks to verify this score before processing a conversion to dollars, euros, or other currencies.
The system would be assessed by a numerical rating, usually on a scale of 0 to 100, reflecting the likelihood that the funds are linked to illicit activities. A high score, close to 100, would be given to Bitcoin and cryptocurrencies from verified wallets understood to be trustworthy, known as a “whitelist” or allow list. These wallets are usually associated with users who have passed identity verifications (KYC) and have no links to suspicious activity.
Meanwhile, funds with high scores could circulate without restrictions, facilitating transactions and conversions to fiat without complications. Conversely, a low score, close to 0, would point to assets that have gone through wallets included in a “blacklist” or deny list, associated with criminal activities such as hacks, darknet marketplaces, or mixers.
The plan published by the BIS includes that the authorities of each jurisdiction establish a minimum AML score threshold to allow transactions. This approach could also impose a “duty of care” on users, incentivizing them to transact with high-scoring wallets to avoid problems.
However, the proposal shifts the risk and complexity directly to users, who would have to adapt to the following changes:
- Their self-custody wallets would no longer be a refuge. This is because, although it maintains control of the keys, when trying to convert funds to fiat, they will be subjected to scrutiny based on their past.
- Exchanges could reject your funds: If your bitcoin or stablecoin receives a low score for interacting with a “blacklisted” address, the exchange will have the power to block deposits or withdrawals, affecting its liquidity.
- Increased identification requirements (KYC): Depending on the stringency, users could be forced to go through a more rigorous process, including moving funds between their wallets if they want to maintain a “clean score.”
The most radical change is the imposition of a “duty of care” on the user. This is especially due to the fact that it will no longer be enough to receive a payment. Everyone will also be forced to consider the origin of the funds they accept. Receiving bitcoin and cryptocurrencies from a “contaminated” source could stain the entire balance of a wallet.
The whole plan involves new costs and complexity for users to protect themselves; they will likely have to resort to third-party services to analyze the provenance of the assets before accepting them, adding cost and friction to each transaction.
From the strictness of the proposal, it is clear that there is a marked interest in regulation being embedded in the logic of each transaction. For users, this means that sovereignty over their assets will be accompanied by a new and complex layer of personal responsibility and constant vigilance.
About The Author
