FATF Travel Rule’s Technical Challenges and Solution Taxonomy

Virtual assets are globally recognized as a decentralized digital currency system. They are also being used to transfer criminal proceeds. In 2019, the Financial Action Task Force mandated the Travel Rule for virtual asset service providers (VASPs). However, as of March 2024, it has not been fully implemented worldwide due to the Sunrise issue. Complying with the Travel Rule poses challenges such as identifying the recipient VASP from a virtual asset address, proving ownership of the address, and ensuring communication protocols between the VASPs. In this paper, we focus on these three challenges and provide potential approaches for each, along with additional considerations. We have analyzed multiple existing protocols and categorized their characteristics. Our findings revealed that the majority of them are based on an alliance of VASPs, while there are a few solutions that suggest peer-to-peer messaging for every VASP or blockchain as a communication hub. Additionally, we offer insights into open challenges that need to be solved in the long term.