Binance, the world’s largest crypto exchange group, has chosen the Shyft Network to help address a looming regulatory requirement that firms must share users’ personal data when handling digital asset transactions.
Barbados-based Shyft Network is one of an array of potential solutions to the Financial Action Task Force’s (FATF) “Travel Rule.” The name comes from the stipulation that personally identifiable information must travel with a transaction (no mean feat considering crypto transactions are pseudonymous by design.)
“Shyft stands out because they are extremely acute, and very well connected with global regulators,” said Samuel Lim, Binance’s head of compliance. “These things we consider to be very important. Of course, the underlying technology stack is core, too.”
Getting the public endorsement of Binance is a big deal for the Shyft Network, a SWIFT-like infrastructure incorporating ethereum technology. The firm hired former FATF executive secretary Rick McDonell as an adviser last October.
“We have been working with a lot of the big exchanges for the last nine months,” said Shyft Network co-founder Joseph Weinberg. “Binance is the first to publicly come out, but more will definitely be on the way.”
The FATF, a global anti-money laundering watchdog that sets rules for the G-20 group of countries, will review progress on addressing the travel rule for virtual asset service providers (VASPs) in June of this year.
But it’s still early days as far as the industry is concerned. Binance said it has been in talks with “a good four or five” candidate solutions. “Shyft is not the only solution we are endorsing but it’s the first that we are putting our brand behind. Things could change in the future but as of now, the focus is on Shyft,” said Lim.
There are a number of moving parts when it comes to meeting travel rule requirements, including creating an identity system across a universe of VASPs, the storing and sharing of personally identifiable information (PII) without compromising privacy, and agreeing on a standardized messaging or data transmission system.
Interoperability first
Whatever solutions the industry adopts, interoperability between them is a must.
“If a European solution does not fit with an Asian solution, then both of them are wrong,” said Lim.
“Maybe at the start these solutions are trying to differentiate themselves and perhaps there is sort of a competing factor, or competitive advantage. But down the road, when they get big enough, they will not have much of a choice other than to be working with others to satisfy the information transfer and relay requirements,” he said.
The Shyft Network comprises three layers, explained Weinberg. The network itself is a blockchain built from a modified version of the ethereum codebase. A second layer is a smart-contract infrastructure which determines how counterparties are identified and rules about how they share data. The layer on top is where the actual data transmission happens.
Weinberg said the lower layers of the system are interoperable with other travel solution providers, mentioning CipherTrace, an advocate of certificate authorities to identify VASPs; Netki, which favors a decentralized approach; and OpenVASP of Switzerland, which also uses elements of ethereum technology.
“We have been working with OpenVASP on interoperability already,” Weinberg said. “Because the Shyft blockchain is a forked version of ethereum, you can actually deploy all of OpenVASP's smart contracts fully onto Shyft.”
Some players believe a decentralized blockchain-based approach is needed to solve the travel rule problem in a manner appropriate to crypto companies, while others would prefer to rely on more centralized systems.
Lim of Binance was decidedly agnostic about the choice of tech.
“We are not really concerned if this runs on ERC-20, on Ripple, or on Binance Chain. It doesn't really matter. We need a cat that catches the mice. That’s the solution for us,” he said.