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Solving the “Sunrise Problem” is key to unlocking mass crypto adoption

We’ve all been there. You see something, hear something, or feel something and want to share that feeling or observation with someone else. do you answer the phone Send a SMS? record voice memo?

People thrive in our shared experiences: a captivating concert, the winning goal of a sports match, waking up to watch the sunrise. There’s something fulfilling about having an experience and being able to share it with someone in real time. And thanks to technology, we can do that even if another person, let’s call them our counterpart, is on the other side of the world.

So why shouldn’t we expect the same level of seamless communication and collaboration in an industry built on this very idea – full interconnectivity and global reach? Crypto was designed to democratize access to finance, community, and technology. And yet, in the current regulatory climate, with government agencies tightening their scrutiny over how customers transact across the world’s coinbases and binances, we are witnessing growing delays amid the rapidly escalating sanctions that are causing a major disruption in crypto’s connectivity.

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As a result, crypto exchanges face an adverse hurdle when attempting to comply with compliant transactions (and process compliant transactions among themselves) amid global regulation. What is holding our industry back at a time when we need clear compliant solutions? Meet the Sunrise edition.

The current status of the VASPs – and the Travel Rule

If you’ve been following crypto’s regulatory landscape for the past three years, you’ve probably come across the term “VASP,” which stands for Virtual Asset Service Provider, a term that originated with the FATF (Financial Action Task Force).

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In addition to creating acronyms, the FATF acts as a global watchdog to prevent money laundering in financial transactions. The FATF is responsible for the Travel Rule, a financial regulation that will require banks, crypto exchanges and other crypto actors to exchange data on participants (customers) in financial exchanges with a value of over USD/EUR 1,000 from 2020. Some countries have even lowered the threshold to zero. What makes a VASP? Broadly speaking, a VASP is a cryptocurrency exchange, liquidity provider, or custodian that can be centralized or decentralized.

Related: The FATF includes DeFi in the guidelines for crypto service providers

Sunrise is for everyone, right?

So here is the problem and why it is so detrimental to progress. Compliance must be seamless and simultaneous. From a crypto compliance perspective, let’s break down what that means and how problems can arise when one VASP sends a request for information about transactions with customers to another VASP. VASP “A” (a crypto exchange) operates in a jurisdiction that requires compliance with travel regulations. Following the “sunrise problem” analogy, VASP A can see the sunrise at its location and would like to be able to talk about it (exchange customer data) with an interlocutor who lives in another location where the sun has not yet risen (VASP b). VASP “B” is located where the Travel Rule is not yet a regulatory obligation. Not only is VASP B in a different “time zone,” the rules are completely different. How to solve the dilemma when there is a compliant and a non-compliant VASP?

VASP A (a crypto exchange that deposits or sends money) sends a “request for information” to VASP B. Coming back to the sunrise analogy, VASP A wants to talk to VASP B about their experience watching the sunrise. VASP A sends a request for this information from VASP B, who does not respond because the sun has not yet risen where they are. It could be tomorrow, it could be a year, but right now there is a misalignment leading to a possible non-compliance with VASP A, which remains accountable to its specific regulators. The Sunrise edition hits.

Related: DeFi: Who, what and how to regulate in a borderless, code-driven world?

Realize yourself with the regulation

In recent years, platforms in crypto and DeFi have been hard at work developing compliant solutions to government regulations like the travel rule. Ideally, these solutions allow VASPs to operate without disrupting their customers’ transactions.

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The truth is that regulation in crypto is no longer an “if”. It’s there – and it’s growing. And while some in our industry have a knee-jerk reaction to defaming regulations, compliance protects customers and exchanges, and is put in place to guard against malicious intent and bad actors that are setting the industry back on our journey to global mass adoption. That need is real: According to TechCrunch, crypto losses are up 695% year over year after massive hacks like last month’s $625 million Axie Infinity/Ronin Network exploit. The trick is, how do we stay compliant, protect ourselves, and not give up the level of pseudo-anonymity and identity that many of us turned to crypto to even experience?

Related: The loss of privacy: why we must fight for a decentralized future

How to solve the Sunrise problem

The answer is compliant solutions that solve the Travel Rule and the Sunrise edition. If we want to be a compliant industry, we need to make sure regulation is possible (and smooth) for everyone involved. In order for this to be possible, VASPs must be able to process transactions — and transfer the necessary customer data — to one another, whether one is VASP Travel Rule compliant and the other not yet fully compliant with their jurisdiction’s regulations, which requires tiered implementation.

How do we get there? Solutions like Verisope, a travel rule solution, and a decentralized P2P data transfer network just launched by Shyft Network allow for a “historical look back” at any crypto transaction that involves a VASP transfer. This feature allows VASPs to receive information about every transaction, regardless of when it occurred, even before the receiving VASP has logged into Veriscope or any other travel rule solution. When a new VASP joins, they receive these historical data requests and can respond with the information they need, preventing the industry deadlock (aka the sunrise problem) between compliant and non-compliant VASPs.

Crypto deserves better

If ever there was a need to democratize access to compliance while protecting customer identity across the chain, now is the time. At the end of March, we woke up to the news that the European Parliament had voted to introduce new sanctions that would require KYC (Know Your Customer) compliance for private, non-hosted crypto wallets. Regulation will soon affect all jurisdictions around the world and every person in every jurisdiction. If exchanges and clients want to conduct transactions (and host transactions) legally, we need to be able to exchange key information for current, past and ongoing transactions.

Shared experiences and the ability to communicate ultimately make us human. If crypto is to help improve finance and humanity, we deserve the best solutions to the toughest problems. Let’s be ready.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Joseph Weinberg was an early investor in Bitcoin in 2010 and a Director at Coinsetter until it was acquired by Kraken in 2016. He is well versed in the cryptocurrency world. Currently, Weinberg is the co-founder of Shyft Network, the blockchain-based trust network that reclaims trust, credibility and identity. Passionate about driving mass adoption of crypto and blockchain, he also serves as an advisor to the OECD and the Financial Stability Board, as well as to governments and regulators worldwide.