In the crypto industry, LEIs can be used to identify and track the activities of crypto exchanges, wallets, and other entities. Read on to learn about LEI in cryptocurrency!
A digital or virtual currency known as cryptocurrency is protected by cryptography, making it nearly impossible to forge or double spend. One distinguishing characteristic of the currency is that since no govt or other central authority issues it,
It is immune to meddling from the government. The decentralized control is the norm for crypto; when a single issuer mints or issues all of the currency, it is referred to as “centralization.” But when a cryptocurrency uses distributed ledger technology, which is often a blockchain, it acts as a public database of financial transactions.
Cryptos are anonymous, as is clear from their description since real-world identities cannot be connected to the addresses of users. The currency is more anonymous than internet payments but less anonymous than cash. Money laundering, terrorism financing, and other nefarious business have all been made possible because of the currency’s anonymity.
Additionally, tax avoidance uses it. Taxable income collection is one such activity. Because tax authorities cannot monitor or penalise such tax transactions, crypto is a secure way to evade taxes. In this blog, we will discuss LEIs in cryptocurrency.
Legal Entity Identifiers in Blockchain Transactions
Organisations, people, and things make up the three layers of identity as a general concept. For online transactions to be fully secure, all three must be identified. Since blockchain is decentralised and accessible across a wide network,
It is not the ideal place for identification information. When you include information about users and their identifying attributes, such as addresses and financial data, this poses a security risk.
LEIs can assist with the organisation’s identity layer and include no personal data because they are only 20 digits long.
The corporate entity referred to as the banking sector could set up procedures to check transactions in the LEI database. When it comes to digital transactions on the blockchain, LEIs can give peace of mind. An LEI may result in entity identification and personal identity in transactions if the financial institution or other organisations keep a record of transactions. It would also imply a significant reduction in the amount of time needed to track down a transaction.
Incorporating LEI into a blockchain can be done in two different ways:
- The first choice is to issue LEI on a platform that supports blockchain technology. An ideal infrastructure environment will be created as a result, enabling an LEI to operate successfully. Each modification to the particular LEI is tracked by the blockchain ledger, which later saves it in a distributed manner.
- Monitoring financial instruments like digital assets via an LEI system is the second alternative. Using LEI to track digital assets like security tokens, to put it another way. Including a legal identity system for any organisation that controls more digital assets, adds a further degree of regulatory compliance. This calls for a higher level of security and confidence among the users of the financial company and the instrument.
If the information regarding the individuals and businesses conducting transactions on the network is validated, cryptocurrency may become more widely accepted. Legal Entity Identifiers can help with some of the solutions to that problem. This does not imply that organisations will no longer have access to their data. It will instead increase the transparency of crypto and all its transactions. Whether the network is centrally managed, IDs can nonetheless protect its openness and transparency since they make life more difficult for fraudsters.
Credibility in the Cryptocurrency System
Cryptocurrency is perhaps one of the most private forms of payment available today, however, it is not as private as most people believe. The value of cryptocurrency lies more in its decentralisation. In his renowned paper, Satoshi Nakamoto only discussed peer-to-peer networks. He reasoned that it would be difficult for a hacker to change or alter the data if we put a transaction on a distributed network of many “peers,” since they would have to change it for each peer.
The early misuse of cryptocurrencies shouldn’t serve as a dissuader now. Although it still has its purpose in defending user and corporate data from financial crime, crypto cannot help you on its own. If we confirm certain facts about ourselves and the businesses conducting transactions on the network, cryptocurrency may become more widely accepted.
The difficulty is partially overcome by the use of legal entity identifiers. This in no way implies that we are ceding our privacy or freedoms. The bitcoin system and each transaction that goes on as a result of it will gain more credibility and transparency as a result of identifying data. Whether the network is centralised or not, identities can still protect their integrity and independence by making life more difficult for attackers.
The idea behind any internet network has always been to keep the bad guys out to make it more effective for the users.
Who Can Issue a Legal Entity Identifier Code?
GLEIF controls the issuance of LEI. The foundation that manages the issuing of LEIs is called the GLEIF. The GLEIF does not issue LEIs directly; rather, they are distributed through a network of both public and private businesses that serve as LOUs.
They serve as a portal for organisations looking to get an LEI and provide LEI registration and renewal services.
Renewal Of an LEI Code
The LEI code for a legal entity must be renewed every year. An LEI code granted on 2.1.2022 must therefore be renewed before 2.1.2023. Your LEI will become inactive if the cutoff has passed unless it is renewed again. To guarantee that the information in the Global LEI Pool is current and pertinent,
This renewal procedure is required. In any case, a month before the deadline, LEI Register will send you a notification. If your LEI code is being renewed for more than one year,
The LEI Register will be in charge of verifying your data before renewal and renewing your LEI code annually.
LEIs are an important tool for identifying and tracking the activities of crypto exchanges, wallets, and other entities. Obtaining an LEI can help crypto companies meet regulatory requirements. Also, it can enhance transparency in the industry. By providing a unique identifier for cryptocurrency entities such as
- Market participants,
They can monitor the activity of companies using LEIs to make sure they are conducting themselves ethically and openly. Overall, the use of LEIs can contribute to the development of a safe and transparent cryptocurrency industry.
Did you know?
- The Global Legal Entity Identifier Foundation is responsible for issuing and maintaining LEIs.
- LEIs are designed to be globally recognized and portable, meaning they can be used in any jurisdiction.