Why Compliance is a Huge Deal When Using Blockchain Currency in Your App

December 20, 2017

It’s true that blockchain technology has made it much easier for developers to safely provide users with virtual currency to use within apps. This virtual currency opens up a lot of possibilities for app users, from selling their own content, purchase virtual items, and even earn redeemable points.

That being said, virtual currency and blockchain currency are not necessarily equal. The legal framework regulating blockchain currency is still developing, and poses greater risks for both developers and users. So in order to remain in full compliance, app creators must familiarize themselves with the current regulatory restrictions.

Examples of Blockchain Currency in Apps

To further understand exactly how a developer might include the use of blockchain currency in an app, consider two examples.

Game development studio LeviarCoin recently announced the launch of its own blockchain-based cryptocurrency that independent parties can use within their own apps. It’s primarily designed to facilitate in-app purchases.

LeviarCoin aims to implement fraud protection over blockchain currency. However, while this sounds impressive in theory, it’s worth noting that a legal stipulation on the announcement makes it clear that, as of now, “values balances are not subject to consumer protections.” What this again makes clear is that the legal framework for blockchain currency is still developing.

AppCoins, which has 200 million active users, is another interesting example of blockchain in app development. It demonstrates how blockchain currency can make it easier for unbanked or underbanked people to access products and services previously unavailable to them.

There are approximately 2.6 billion smartphones in the world. However, approximately 2 billion smartphone users don’t have credit cards. This makes it difficult (if not impossible) to take full advantage of in-app purchases.

blockchain in app development

AppCoins plans to disrupt the status quo by creating an environment in which users could earn blockchain currency, which they could then use for in-app purchases and related functions. It aims to attract developers to its platform by sharing 85% of the revenue from in-app purchases, as opposed to the traditional 70%.

A transparent ledger of public transactions will allow AppCoin owners to rank developers if disputes arise. Of course, that means there is a threat of cyberattack or hack. Additionally, providing greater access to purchase opportunities increases the potential for risky spending. Similar to the issues with credit card debt, blockchain can be a source of conspicuous consumption that threatens an individual’s financial health.

These are just two examples of how blockchain in app development may become more common. They also illustrate why it’s important to comply with the appropriate regulations. This technology is new, and laws to protect consumers are still emerging. For the user, too, they must provide their acknowledgement that this is a real currency with actual consequences if they over-spend.

Currently, the Financial Crimes Enforcement Network, or FinCEN, oversees and enforces the legal requirements United States app developers must abide by if they wish to allow blockchain currency usage in their products. These requirements apply to institutions and entities that qualify as “money transmitters” according to FinCEN.

What is a Money Transmitter?

A money transmitter, put simply, is any institution that accepts currency (or any valuable asset that could serve as substitute for currency) and/or facilitates its transmission.

Unfortunately, the  definition of what constitutes money transmission has never been entirely clear. FinGEN must sometimes provide expanded clarification. This is often due to the fact that applicable laws don’t always keep up with emerging industries. Relatively speaking, using virtual currency in an app is a relatively new phenomena. Developers should consult with legal experts to determine whether their products qualify as money transmitters.

If the regulations do apply, the developer or company must register with FinCEN and implement a Bank Security Act/Anti-Money Laundering (BSA/AML) program. They must also appoint an officer to oversee the program. This individual’s duties would include gathering identifying info from users, reporting suspicious transactions, and training personnel in the appropriate anti-money laundering procedures.

As of now, developers face two major obstacles in regards to protecting users and limiting disputes related to the use of blockchain currency. They must develop ways to ensure that any data written into a blockchain code is accurate, and they must create ways to write that data in.

The takeaway:

These are not minor tasks in order to ensure full compliance with blockchain implementation into an app. That’s why it’s necessary to continue staying abreast of the relevant legal principles.

Blockchain currency will likely have a positive overall impact on apps, allowing developers to expand the features their products offer while enjoying greater rewards for themselves. Said developers must simply make sure they’re not jeopardizing themselves or their customers by failing to adhere to the restrictions governing its use.

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