At the time when even the digital payment system is not known, Satoshi Nakamoto introduced the concept of digital currency with Blockchain-based Bitcoin. Initially, Bitcoin or cryptocurrency was not accepted and it costs only a few cents. But after the prices skyrocketed in 2017 and the investors started considering it as the source investment, the demand for the cryptocurrencies increased all across the world. As the industry started growing, the threat of money laundering, scams, forgery and many more also came in the picture. To assure that decentralised crypto space does not turn into the dark web, regulators made some compliances, rules and regulations essential for crypto stakeholders. In this article, we are going to discuss KYC Compliance which is mandatory not only to confirm the set of rules and regulations of regulatory bodies but for the purpose of safeguarding own business and financial interests.
What Does KYC Compliance Mean?
KYC Compliance or Know Your Customer process or identity verification process is not a new concept but already associated with financial institutions. Still, to freshen up your memory, it can be briefed as to the process of identifying that you really are who you say you are with the help of authenticated documents containing your personal details. The main purpose of this process is not only to safeguard the interest of institutions involved but to make sure that individuals are protected from fraud and also from identity theft.
As the huge number of investors are putting their money in digital assets, the entire process of KYC has become essential to safeguard the interests and money of the community. KYC process is a two-step online process in case of digital currency in which you need to confirm your phone number by entering the specific OTP sent to your number and provide the personal ID to verify your identity on various platforms of crypto exchanges, wallets and many more in the crypto market place (Don’t worry, it is a one-time process and is completely online!)
How KYC Compliance Can Encourage Better Crypto Space?
Traditional crypto enthusiasts and investors consider that KYC compliance can hamper the basic structure of decentralisation and anonymity of the blockchain-based cryptocurrency. But, modern players in the industry are exploring the advantages of KYC procedure for the growth of Bitcoin and diversification of crypto industry. Let us discuss the KYC with the eyes of the supporters of the process:
Compliance To Regulations
Government agencies and financial regulators all across the globe are imposing strict regulations on the Bitcoin industry (because when they can’t manage, they thought of regulating it!). For instance, in the USA, FinCEN imposed the rule on every crypto exchange to complete the KYC process of users and follow effective AML rules; similarly, legislators in the EU imposed the KYC rules on fiat to crypto exchanges like that of Coinbase. With the aim to prevent money laundering and safeguard the money of users from fraud, government authorities and watchdogs needed the compliance of exchanges by completing the KYC Authentication process, in a way making the crypto industry less deceptive. So, it would be better for exchanges to adopt the digital KYC process, otherwise, they may invite the resistance from investors along with delayed recognition across the world.
The KYC authentication process offers a great opportunity for crypto platforms and crypto enthusiasts to earn credentials and legitimate status. This tool to regulate the cryptomarkets aims to stabilize the exchanges in the coming years. People are still sceptical and have doubts while investing in digital assets, but staunching KYC programs are serving the purpose to signify that the crypto space has legitimate entities.
As per the modern crypto investors who wish to boost the legitimate status of the crypto industry considers that KYC is not an artificial tool which can undermine the functional aspect of crypto exchanges but can ensure transparency. As virtual currencies and exchanges have their history by scams, hacks, attacks and many more, new investors hesitate to invest in the currency. By the implication of KYC procedures, exchanges can demonstrate the transparency and trustworthiness of the network. Systems involved in verifying the identities do not aid the customers only but exchanges also by verifying and breeding the trustworthy customers.
Anonymity is one of the features which is being described uniquely to crypto space. But in a way, it has added to the problems leading to increased criminal elements including the risks of money laundering and threats of terror funding. Enhanced and trustworthy KYC solutions can aid in solving issues related to anonymity without hampering the technological aspect of the feature. Especially, in the peer-to-peer exchanges, unfortunate traders can easily be trapped in the high-end tactics like that of dots and commas, chargebacks, dirty money tricks and many more of the scammers. In this sense, KYC regulations play an important role in highlighting high-risk users and weed out criminals.
For the users to completely trust in the system, they need to be assured of the risk management system of exchanges. Security of customers with KYC solutions can shape up the multi-layered safety approach to the cryptocurrency transaction. Also, crimes like tax fraud, terror funding, money laundering and many more which can be easily avoided by following the KYC solutions. Thus, authentication through the process of KYC can help in detecting the spoilers of crypto space and minimise their impact on the industry.
Generally, well-reputed exchanges are deploying KYC solutions to assure a safe and transparent platform. For instance, Coinbase uses digital ID solution along with biometric facial recognition to ensure the KYC regulations while a user is selling or buying the coins on the platform; Binance ask the users to submit the copy of PII, valid government ID and social security number for the users of USA trading with more than 2BTC; peer-to-peer Bitcoin platform Paxful deploys the AI-powered identity verification system to the know-your-customer procedure to minimize the risk of fraud and guaranteeing the safe along with open system; India’s largest exchange CoinDCX digitally automates the procedure of KYC with the help of Onfido’s technology. Thus, achieving the goal of deploying the solutions for KYC Compliance could help in revolutionising the crypto space and achieving the large scale adoption of cryptocurrencies.