By studying customer requirements and culture, entrepreneurs create businesses and opportunities that help to add some value to cryptocurrency in the life of people by making their job easier. Undoubtedly, there are several government compliances that need to be adhered to by the business.
Businesses are paying tons of money as fines for not following the gov. compliance, sometimes it happens with and without intention. Some may want to completely adhere to compliances but they may not know the right way to do so. Obviously, there could be several steps that a product has to go through, and in each step gov. regulator and other related participants of the ecosystem may have to engage and interact.
There are no mechanisms that help gov. regulators to know the status and condition of the product launched by businesses in the market. So the regulator demands more information about the business and product in different phases of the product lifecycle. Unfortunately, the regulator finds that the compliance set for the product is not adhered to and as a result, guess what?? The business has to pay fines, not a very happy moment. Expert says that businesses had to pay $64 billion per year in fines but with the gradual development of blockchain technology and its uses, the fine rate is reducing yearly.
Technology for Regulation Using Cryptocurrency
Cryptocurrency can be the ultimate solution for these kinds of RegTech issues. I would like to explain a bit more about Cryptocurrency and its uses in RegTech. I think it would make more sense to talk by referencing an example. So I am taking an example of vehicle leasing which is supposed to be regulated by the gov.
Normally, there are 6 participants in the echo system of vehicle leasing. They are:
- Government Regulator
- Leasing Company
- Scrap Merchant
Each of them has got their own role which cannot be crossed. The following is a process flow diagram that depicts how a vehicle template is created, followed by the manufacturer, and how the vehicle gets transferred to different participants of the network.
The Government Regulator is responsible for creating the vehicle template by defining color, mode, make, and vehicle attributes and storing them in the cryptocurrency. but Before storing the template, the cryptocurrency makes sure that the person is the gov. regulator because only the regulator can create the template, nobody else can do this. Once the vehicle template is verified and created, the regulator transfers the template to the manufacturer.
The manufacturer manufactures the vehicle based on the given template. When the vehicle is created, the information is also saved into the cryptocurrency system which means news about the vehicle is known to all participants of the network, including the regulator. So now the regulator can make sure that the manufactured vehicle, is based on the given template or not. The manufacturer’s next step is to sell the vehicle to the dealer companies so a smart contract happens between the dealer company and manufacturer. The smart contract and vehicle transfer to the Dealer are stored in cryptocurrency. Again, the changes are known to each participant of the network.
Now the vehicle is owned by the Dealer. The next step is for the dealer to sell the vehicle to Leasing companies. The leasing company leases the vehicle to the lessee. In each transfer, the information is stored in the cryptocurrency. The lease can take a loan from the bank and pay the leasing company.
Well, continuing, when the vehicle’s life is over, it needs to be scrapped but the lease cannot scrap it by himself or herself, as per the regulation, it should be dismantled by the scrap merchant. So the lease transfers the vehicle to the Scrap Merchant and the information is saved into the cryptocurrency. At the moment, the regulator can see the scrap information and can act on it. Finally, the scrap merchant scraps the vehicle and the info are saved to the cryptocurrency.
In the example above, if there is any action in the ecosystem (network), it’s saved into the cryptocurrency and the change is made available to each participant of the network, Each participant of the network can perform on the basis of the permission and access given to them. For example, the Leasee cannot scrap the vehicle because he/she doesn’t have that permission. Only the Scrap merchant has permission to scrap the vehicle after he/she owns it.