Here’s how Singapore’s crypto regulations are monitoring investors


Many early cryptocurrency users were drawn to the promise of anonymity. With Bitcoin, they could transact directly with each other without having to go through a bank.

Such crypto transactions were designed to be the digital equivalent of exchanging cash, in the sense that they would be easy to facilitate and unattended. Users could store value in digital wallets without having to give out personal information.

Of course, this had its drawbacks. After all, banks and financial institutions perform Know-Your-Customer (KYC) checks for one reason: to prevent criminal activity such as money laundering.

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In 2011, Bitcoin began to gain notoriety for its illegal uses. It was the currency of choice for users of Silk Road, a website now known as one of the most infamous marketplaces for illicit trade.

Silk Road has generated over 600,000 Bitcoins in revenue, worth over S $ 36 billion today, over a two-year period. It wasn’t until late 2013 that the Federal Bureau of Investigation (FBI) was able to shut down the website and arrest the owner, Ross Ulbricht.

The FBI could only find Ulbricht because he had used his real name on websites such as LinkedIn and Stack Overflow, where he spoke about the management of Silk Road. After chasing him, they seized the income he was holding in his own crypto wallet. However, others who shared the income have always remained in hiding.

To date, more than half of Silk Road’s total revenue has yet to be accounted for. But as technology expands to help regulate the crypto space, funds could still be clawed back. Authorities have started implementing new ways to identify blockchain users, even though their wallets come without a login.

Can users be identified through their crypto wallets?

By nature, a crypto wallet does not record any information that identifies its owner. What Is it that being recorded is every transaction made to and from a crypto wallet. This information is stored on the blockchain and can be viewed by anyone.

With millions of transactions made every day, it was nearly impossible to keep track of crypto leads.

However, tools have been developed over the years that can pull blockchain data together and visualize the flow of cryptocurrency from one wallet to another. Using such tools, one can identify a wallet that contains stolen or illicit crypto.

crypto wallet entry and exit
A visualization of the entries and exits of a crypto wallet on / Screenshot of

After that, it becomes a waiting game. As long as the crypto remains on a decentralized platform, authorities are unable to seize it or directly trace the owner.

However, if the owner tried to convert the crypto into fiat currency, it would likely reveal itself in the process. This is due to crypto regulations now implemented in countries like Singapore.

How do Singapore’s crypto regulations monitor transactions?

The primary way to buy cryptocurrency using fiat currency or convert cryptocurrency to fiat currency is through a centralized exchange (CEX).

In Singapore, this includes companies such as DBS Vickers and Independent Reserve. These approved exchanges are governed by the Monetary Authority of Singapore (MAS) Payment Services Act. Here are the points provided for by law with which the stock exchanges must comply:

a. customer due diligence by verifying their identity and activities;

b. monitoring customer transactions for signs of money laundering and terrorist financing;

vs. screening clients against the relevant United Nations international sanctions list; and

D. keep detailed records of client activities and have a process in place to report suspicious transactions to SAM.

As is evident, if one were to buy crypto in Singapore using SGD, one would have to give up his personal data. The same is true if they transferred the crypto from their decentralized wallet to a CEX.

Going back to the previous example: Authorities can monitor decentralized wallets containing illicit cryptos, and if the owner tries to transfer them to a CEX, then they can have them seized.

This is possible because CEX users don’t actually have crypto stored in individual wallets. All value remains stored with the CEX itself, with a record of what each user owns.

There are also regulations regarding what information must be shared between CEXs when a transaction is made.

What is the crypto travel rule?

In January 2020, MAS implemented the Crypto Travel Rule which was established by the Financial Action Task Force.

According to the rule, when the cryptocurrency is transferred between two CEXs, the information of the users involved in the transaction must be shared between the exchanges.

When the value of the transaction exceeds S $ 1,500, the sender’s address, IC number, and date of birth are all sent to the recipient CEX. For transactions below this threshold, only the name and ID of the wallet are shared.

Currently, there are no regulations preventing sending or receiving cryptocurrency from a decentralized wallet.

The stock exchanges are warned that such transactions carry a higher risk of being illicit and are left to their own discretion to apply enhanced due diligence measures.

Scale: P2P crypto exchanges

P2P exchanges allow users to bypass CEX regulations and convert between cryptocurrency and fiat currency.

On these platforms, users trade directly after agreeing on a fixed price. A user sends money by wire transfer and in return, the receiving party sends the crypto to their wallet.

local bitcoins
LocalBitcoins is a P2P exchange that allows users around the world to trade cryptocurrencies and fiat money without performing any KYC procedures / LocalBitcoins screenshot

Since there is no record linking the two transactions and the cryptocurrency never leaves a decentralized wallet, it is impossible to trace the parties behind the trade.

P2P exchanges are often used by people residing in countries where it is illegal to own crypto.

They can also be mined by users who are trying to get rid of the stolen crypto. Aware that they cannot withdraw their coins through a CEX, these users can sell off large sums on P2P exchanges by offering a rate slightly lower than the market.

What does the future hold?

Under decentralization, the power to remain anonymous on a blockchain remains with the user. However, authorities are still able to regulate the space by monitoring entry and exit points. This appears to be a fair compromise as it deters the illicit use of anonymity, while allowing regular users to continue to reap the benefits.

That being said, new ways to hide blockchain transactions have now started to emerge. As technology evolves, it is more than likely that new regulations will follow in the near future.

Featured Image Credit: CoinFlip


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