The cryptocurrency industry is no stranger to controversies surrounding it in terms of privacy and security. Multiple reports have claimed that the number of scams and frauds in the digital asset sector has only increased over the year with projections looking at higher numbers.
To put a stop to these issues, many cryptocurrency organizations and companies brought in the concept of Know Your Customer [KYC]. The idea of KYC was first popularized in the mainstream banking culture where customers were held accountable for their accounts and their actions in the financial ecosystem. This was also a way to ensure that institutions were not dealing with bad actors who used legitimate channels to funnel dirty money.
It is interesting to see how far the cryptocurrency industry has come from its initial days of being the wild wild west of the financial world. When Bitcoin was first introduced to the public eye in 2009, very few people were involved in trading it. As the number of investors and traders increased, the regulatory system could not keep up with. This led to large scale scams that resulted in people losing millions of dollars worth of their holdings.
As the industry progressed over the years, regulatory authorities like the US Securities and Exchange Commission [SEC] and CFTC made it a point to keep a close tab on it. At the same time, crypto companies also understood that if they needed to be accepted into the mainstream fold, they had to take certain steps to ensure customer and capital safety. Since 2013, a majority of the companies in the cryptoverse such as Coinbase and Binance have integrated KYC and AML into their workings.
AML or Anti Money Laundering is a way to keep track of funds within a cryptocurrency system and its buy and sell points. Bodies such as the SEC have repeatedly pointed out that the main reason why cryptocurrencies are not considered as a legal tender is because of their decentralized nature. Some of the common steps in a KYC process are:
- Verifying customer identity- Customers are usually asked to upload a document that is valid and not expired with a photo that is included.
- International customers are asked to provide another layer of confirmation because of a company’s lack of physical reach across borders.
- Over the years, crypto companies have made it easy for customers to provide documents thereby allowing trades to take places at a seamless rate.
The side effects of large scale KYC implementation
Although KYC is seen as a step in the right direction when it comes to privacy and customer protection, many have called it a blatant violation of credential safety. Many crypto traders have admitted that the anonymous nature of the industry was one of its main attractions. Taking that away made just like any other financial system where user information was privy to the government.
This issue reached a head when rumors began circulating that Coinbase was planning to sell its blockchain analytics software to the US government. The uproar was not just verbal as customers withdrew almost $200 million worth of Bitcoin in an instant. The news was also a good starting point for several other exchanges that did not ask for any KYC details.
The future of KYC
It is pretty safe to assume that the concept of KYC is not going anywhere if the cryptocurrency sector wants to go mainstream and achieve global adoption. Companies will have to comply with certain regulations set by governments and regulatory authorities but that does not mean that they have to forgo the core fundamentals of the virtual asset world.
Blockchain-based fitness application BeFaster.fit is an example of an organization that has adopted KYC while retaining its core values. BeFaster investors are required to submit details that are checked and stored by third parties contracted by BeFaster.fit and which are not disclosed to any external party.
It is imperative that more companies adopt this routine so that there is a proper check-in the ecosystem they are creating. At the moment, the onus is on both companies and users to protect the ecosystem before naysayers wipe it out with their criticism. A project or start-up that does not offer the KYC process on its own or through an external service provider is definitely not a safe haven for investors.
In today’s world, one can deduce that projects without KYC often have no honest intentions. Of course, a KYC procedure is associated with a certain amount of effort for many investors. But it protects the investor from scam projects and a possible total loss. A company without KYC may receive a regulatory ban and have to cease operations.
A project or start-up that does not offer the KYC process on its own or through an external service provider is definitely not a safe haven for investors. In today’s world, one can deduce that projects without KYC often have no honest intentions. Of course, a KYC procedure is associated with a certain amount of effort for many investors. But it protects the investor from scam projects and a possible total loss.
A company without KYC may receive a regulatory ban and have to cease operations. Here, the responsible authorities are taking more and more frequent and binding action to provide the greatest possible security for the entire financial-economic structure. In summary, it can be said that companies and projects with KYC procedures are more likely to meet the regulatory requirements and licenses. A strong foundation steeped in fund protection is the way to go for future mass adoption.
Here, the responsible authorities are taking more and more frequent and binding action to provide the greatest possible security for the entire financial-economic structure. In summary, it can be said that companies and projects with KYC procedures are more likely to meet the regulatory requirements and licenses. A strong foundation steeped in fund protection is the way to go for future mass adoption.