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How to Use Blockchain Technology in the Prevention of Money Laundering

There’s a myth that cryptocurrencies are only used for money laundering and other criminal acts, but truth be told, it’s actually the banks that have the largest money-laundering scandals in history. To prove this point, here are some of them.


· Wachovia Bank at $380 billion

The largest recorded money laundering scandal so far was with Wachovia Bank, now the Wells Fargo Bank in the United States. The money laundering happened in 2006 with a major drug bust and a trail of a report on a 22-month investigation that led to Wachovia Bank being used by Casa de Cambio (CDCs) for money-laundering. CBCs are currency exchange houses used by drug cartels in Mexico.


· Standard Chartered Bank at $250 billion

Standard Chartered Bank is a UK institution that has been founded in 1969 but has not started with money-laundering issues until the 2000s. Due to the lack of AML policies and its continuous relationship with Iranian customers, money-laundering activities had caused it a total of $1.1 billion worth of fines from both UK and US authorities.


· Danske Bank at $229 billion

The latest money laundering scandal in history so far was with Danske Bank of Denmark in 2018. In fact, it is now called the largest in Europe as of the time of writing. The money laundering started when acquired Sampo bank, which included its Estonian branch. The bank ignored the large amounts of deposits coming from Russia, which were later discovered to be laundered, and caused the bank a $2 million worth of fines from the Danish authorities.


So you see, the myth about cryptocurrency is just really a myth because money-laundering happens mostly in the banks and is probably even as old as money itself. Albeit we also can’t deny the fact that they do happen with cryptocurrency exchanges as well. But cryptocurrencies are digital currencies that use cryptography to process secure transactions. Cryptocurrency exchange markets, such as the Virie Market, use blockchain technology in preventing money-laundering (and other criminal acts). Here’s how.


1. Immutable ledger

Since blockchain technology uses a decentralized network, the fact remains that each participant or node in the market is required to validate changes, making it tremendously secure. Each code is recorded in the blockchain ledgers, so they can compare any changes to their record, which enables them to detect any unauthorized changes. Most markets use Proof of Work (PoW), and for criminals to gain control, they need to have 51% of the nodes. Virie Marketmade it even safer with its implementation of a hybrid protocol of Proof of Work (PoW) and Proof of Stake (PoS). For criminals to gain control, they need to have 51% of each, which needs a supercomputer that doesn’t even exist yet. This makes it entirely impossible for them to infiltrate Virie Market.


2. Establish trustworthy relationships

Having an escrow system in the blockchain-based system like the Virie Market, will establish trust-worthy relationships. Virie provides an elegant mechanism without any third-party needed and follows the principle that to be able to maximize the profits, everybody has to play fair. Both participants make additional deposits, which will be forfeited if any of them does any wrongdoing.


3. Use smart contracts for AML detection

Blockchain-based platforms that use smart contracts can use built-in algorithms to automate the process of AML detection. By programming certain requirements, blockchain technology may be able to automatically block or flag any suspicious transactions. Each participant can act as a node in the blockchain, which will help the network scrutinize every transaction made and could flag it in case found suspicious.


A final thought

It’s quite relieving to know that there could be ways that blockchain technology can be used in the prevention of money-laundering. Albeit many blockchain-based markets may find these AML solutions to still be far-fetched from becoming a reality, Virie Market has already gone ahead and made the first two solutions possible, the immutable ledger and the escrow system. They will be conducting its IEO soon to be able to promote it around the world and to further develop its features, and once they did, who knows, they might also be able to make the third solution possible - the AML detection algorithms. Have a look at its whitepaper here and download the application here to know more about it.



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