Blockchain technology is confidently paving its way toward a mainstream trend. Its use cases have been expanding, with cryptocurrency becoming a lucrative investment for consumers.
The Crypto environment is not governed by any single entity, and users can retain their privacy. However, these features are likewise tempting for fraudsters and those conducting illegal transactions. This adverse effect of the industry expansion poses challenges, such as balancing user anonymity with financial compliance rules. The issue undermines one of the pillars of blockchain technology – decentralization and protection of user information since no government can access the blockchain owners’ identity.
Consequently, regulators are seeking effective ways to control the blockchain industry. The article explores opportunities to address privacy concerns, reinforce compliance, and keep users engaged by retaining the enticing features of the crypto ecosystem.
Current Regulation Challenges
Cryptocurrency transactions are fast and anonymous, which is a tempting chance for criminals to avoid AML/CFT controls. Thus, illicit cryptocurrency transactions counted for $14 billion in 2021, representing a 79% growth compared to 2020. Furthermore, illegal addresses are projected to hold about $10 billion in cryptocurrency in 2022.
In their attempt to attain greater regulation and transparency, authorities emphasize implementing Know Your Customer (KYC) standards. This means that crypto service providers must fulfill their AML/CFT compliance responsibilities while maintaining customer privacy and trust.
Despite these concerns, blockchain and KYC can become a compelling combination. Experts believe that the proper incorporation of KYC into blockchain platforms won’t lead to negative consequences. A more compliant blockchain will sooner gain mainstream status since it will engage more users while avoiding federal penalties.
What does KYC mean for regulators?
In order to keep customer trust and stay on the surge in the crypto landscape, cryptocurrency platforms need to ensure secure transactions and match the Cryptocurrency Security Standard (CCSS). The CCSS establishes requirements for all crypto exchange platforms, applications, and storage solutions.
Regarding crypto exchanges, KYC becomes a serious compliance challenge: companies need to identify customers and understand the transactions' details. To alleviate these specific concerns, providers should adjust traditional KYC practices and include the following measures:
- Identity verification. In order to create accurate risk profiles for customers, crypto exchanges should obtain and verify user data, such as names, addresses, birth dates, and corporate information.
- Customer monitoring. Exchanges should track any signs of criminal activity, including unusual transaction types or transactions between high-risk users and locations.
- Screening. Exchanges must check whether their customers are not subject to international sanctions or politically exposed persons (PEP).
- Adverse media. Adverse news stories may prompt customer risk profiles earlier than official sources. Therefore, such media should be continually monitored.
What does KYC Mean for Users?
Although a perfectly secure online experience is hardly attainable, a high data privacy level is realistic. In the crypto world, people may feel uncomfortable and hesitant with the offered security on a specific crypto platform. Correspondingly, a provider should build a decent level of trust.
Understanding the security regulation methods will help users ease their minds. Cryptocurrency platforms utilize some typical security techniques, such as two-factor authentication procedures. However, personal responsibility in the crypto environment is likewise important.
How can users protect themselves?
- Avoid leaving cryptocurrency on exchanges. Keeping all your digital coinage in one place can make it vulnerable to hacker attacks.
- Avoid holding crypto on local storage. If you back up crypto on any kind of private storage, including a computer or phone, you leave it prone to a loss or stealth.
- Remember passwords. Lost passwords in the crypto world may lead to lost account access and, consequently – lost money.
- Use safe crypto platforms. Choose the services that have been tested and proven legitimate and secure.
Finding Balance Between Privacy and Regulatory Compliance
The cryptocurrency ecosystem has come a long way since bitcoin’s inception; however, its mainstream adoption is only possible with regulatory compliance. Otherwise, a failure to meet compliance requirements can lead to drastic consequences. Thus, BitMex was recently penalized $100 million for illegal trading and AML violations. Later on, Binance, the largest crypto exchange, introduced KYC for its users to counter issues related to AML practices. Therefore, the top players recognize compliance as their top priority.
KYC implementation has already confirmed its efficiency in this way. Therefore, crypto service providers have a task to ensure that customers and regulators are equally happy with the attained balance between anonymity and KYC.
If anonymity transcends KYC and regulatory compliance, providers may fail to gain mainstream traction. Finding the optimal path of implementing KYC processes, which gives the expected level of financial privacy, is the winning strategy for crypto exchange services.
Each cryptocurrency provider approaches KYC differently. However, even full KYC compliance is compatible with a significant degree of anonymity and privacy. The main thing is competent management of the process.
How to establish KYC procedures painlessly and efficiently for a smooth operation of your crypto services? An expert KYC software provider can do the work for you. With KYCAID, you’ll enjoy all kinds of verification services:
- Real-time document verification. Checks users’ personal details and confirms documents’ validity.
- Face recognition. Confirms that customers’ selfie corresponds to photos on their ID.
- Proof of funds check. Checks the origins of funds and funds backing documents.
- Address verification. Validates residence by checking official documents, including bank statements and utility bills.
- Video verification. Verifies identity via video recording.
- Identity database screening. Ensures AML and KYC compliance by checking the PEP, sanction, and watchlist status of a person.
- Company check. Reviews corporate documents, checks against company registers, sanctions lists, and more.
- Ongoing KYC monitoring. Regularly checks the existing customer’s applicants. In case of a new match, a manual check is conducted.
The range of our offers and software solutions does not end here. With our extensive experience in the cryptocurrency sector, we deliver fast and reliable products that bring prosperous outcomes.