What is the travel rule in crypto?

The Travel Rule in crypto is a regulatory requirement that mandates the sharing of customer information between financial institutions during a transfer of funds, including cryptocurrency transactions

Origin of the Travel Rule

1.Introduced by the Financial Action Task Force (FATF), an international anti-money laundering (AML) watchdog. 

2.Originally applied to traditional finance (banks, wire transfers), but extended to Virtual Asset Service Providers (VASPs) in 2019. 

Who Must Comply?

Entities called VASPs, such as:

1. Centralized crypto exchanges (like Binance, Coinbase) 

2. Custodial wallet providers 

3. Crypto payment processors 

DeFi platforms without custodial control are in a gray area and often not directly subject, though some jurisdictions are tightening rules.

 How Is It Implemented in Crypto?

VASPs may:

Use blockchain analytics and Travel Rule protocols (e.g., TRISA, Travel Rule Protocol, OpenVASP) 1.

Require KYC (Know Your Customer) for all users 2.

Pause transactions if counterparty info is missing or unverified 3.

⚖️ Why It Matters

Purpose:

1. Prevent money laundering, terrorism financing, and illicit activity

2. Help law enforcement track suspicious or high-risk transfers 

Challenges:

1. Blockchain was built for pseudonymity, making enforcement technically complex 

2. Cross-border compliance is difficult—different countries have different rules 

3. Raises privacy concerns for users