Even if you are new to cryptocurrencies, you must have heard about KYC and AML regulations. Initially, when cryptocurrencies were just launched, there weren’t such rules surrounding the industry. But as the industry is growing, so is the need to get it regulated. In this article, we are going to talk about impact of KYC on crypto adoption which are now mandatory for all crypto exchange and institutions. We’ll talk about the impact of KYC on crypto adoption and how the world is taking this new regulatory change.
Note that if you are planning to start your crypto exchange or ICO, you need to hire a legal lawyer to deal with such matters. It will not be smart to take legal advice from online articles as they are only for knowledge purposes.
What Do you Mean By KYC In Crypto
In order to understand the impact of AML compliance on crypto adoption, we should learn about what’s KYC and AML first. Talking about KYC, it is the same KYC you do in banks to get yourself verified. KYC is popular among financial institutions as well as many other organizations. KYC aka Know your customer is a process due to which organizations verify the identity of their customers by collecting their necessary details and documents. This is to prevent frauds, terrorism, money laundering and other such criminal behaviour from occurring in the organization. For KYC compliance, you must provide your details like mobile number, email address, home address with address proof, Photo ID with selfie etc.
KYC verification makes it possible for organizations to better manage risk as well as monitor customer activities. There are no fixed rules for the KYC process, instead, different organizations follow different KYC formats. It depends on financial institutions what details and documents they like to collect for verifying a user.
What Is AML In Crypto
The two terms impact of KYC on crypto adoption are rather used together or interchangeably in cryptocurrency. AML verification is to prevent money laundering, criminal funding and other financial crimes. The rules of AML are decided by the financial action task force (FATF) which differs from place to place. Organization and financial institutions need to stick to their domestic AML laws.
Although cryptocurrencies have the better potential to deal with money laundering and reduce such crimes, AML compliance is now a requirement for all crypto exchanges. There have been many instances in the past and that too in big exchanges like Mt. Gox that resulted in bankruptcy. Many exchanges suffered bankruptcy while others suffered high losses. To tackle this it was now necessary to bring AML regulations to crypto. This way it could not only benefit the crypto firms from thefts and criminals but also their customers who eventually suffer the circumstances. Now, you can think yourself, what would have happened to the customers of Mt Gox when it went bankrupt. Nonetheless, there are many people who are opposing this new rule for KYC and AML regulations due to the fact that cryptocurrencies were supposed to keep the users anonymous. Let’s find out what’s the impact of KYC on crypto adoption and how it could benefit the industry.
Impact of KYC/AML On Crypto Adoption
At first, it was the US government which made it mandatory for all crypto exchanges to follow KYC/AML regulations. This was the reason many exchanges stopped providing services there and it’s still the issue in many cases. Any exchange which is based in the US needs to comply with the rules and regulations of FinCEN. Even the exchanges that are based out of the US are rolling out different platforms that are compliant with the US rules to keep themselves alive in the market. So, pretty soon every crypto exchange would become KYC and AML compliant because there’s no other option.
And those not having proper infrastructure to meet the KYC requirement will eventually come to end. This includes startups and smaller exchange. At the moment, such exchanges have already stopped their services in the area where KYC is now mandatory like the US. That being said, that time is not far when KYC requirements in the crypto industry would become a standard in all countries i.e. worldwide. It would be better if these startups would adapt to KYC/AML as soon as possible or else they would suffer the consequences. Not that any of this is going to happen overnight but it surely would affect low budget firms and startups trying to survive the market.
With the demand for KYC and AML regulation, the industry is only heading towards betterment and a bright future. And there’s no doubt that these new rules would only help reduce financial crimes, terrorist funding, money laundering and tons of such issues in the industry. Whether you are okay or reliant to adapt to these new changes, it’s not going to change the fact that it’s happening and there’s nothing in your hand. Moreover, it has it’s benefits if we ignore the negative points. The truth is that KYC is the only way left for crypto to survive in the long run and manage money laundering risks.
KYC regulation in crypto is only the step to centralize the industry, KYC is going to help the industry further grow, it is in the best interest of crypto firms as well as users, there’s no point of decentralized nature of cryptocurrency if we have to provide our details anyway, everyone has their own views on the KYC and AML regulations. Let us know what you think about the impact of KYC on crypto adoption in the comment box.
As the government is taking new steps to reduce fraud and crime in the industry, you must also take all the possible precautions to keep yourself at the safe side. This includes verifying the reputation of the exchange before opening an account in it, storing your assets in a private offline wallet, not sharing your passcode, passwords and private keys with anyone and many more. To know more regarding this topic, read about the best wallets to keep your crypto coins safe from hackers.