1/ In light of the recent Tornado Cash situation, I feel like regulatory risk (esp. AML) for the #Bitcoin lightning network is generally under-discussed.
I will have a closer look in the next weeks, but here are a few initial thoughts 👇
I will have a closer look in the next weeks, but here are a few initial thoughts 👇
2/ Custodial lightning services (strike, cash app etc.) will have to comply with the FATF travel rule and its (e.g. EU) implementation.
This will be hard/tricky to implement for many professional lightning service providers (nodes).
This will be hard/tricky to implement for many professional lightning service providers (nodes).
https://twitter.com/paddi_hansen/status/1510669624748253189?s=20&t=C0xXeJX-bz4Cqh51oPjTLA
3/ Also, professional lightning nodes could be seen as regulated payment services (e.g. payment initiators under EU PSD2 regulation) and this would entail many regulatory requirements (e.g. a potential customer authentication).
4/ More generally, assets routed through the lightning network (& potentially nodes that engage in criminal activities) could be seen (& flagged) as high-risk under AML frameworks, & very hard to off-board to regulated players like exchanges (like assets that went through mixers)
5/ The concerns raised here are not yet fully clear as policy-makers/supervisors have barely commented on this technically complex topic.
But they should be addressed early on in the development of the lightning network.
But they should be addressed early on in the development of the lightning network.
6/ This doesn't apply to pure P2P lighting payments, but let's be honest lighting has a scaling limit for pure P2P usage and the network benefits heavily from professional high-liquid, well-connected nodes (businesses).
7/ I will look closer into this.
Any other opinions or reading recommendations on the topic?
Any other opinions or reading recommendations on the topic?
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