What is KYC Crypto? How It Can Help Crypto Exchanges Grow

by Emily on November 18, 2020

in Articles

Since the world has made a shift into the digital world, the mode of currency has also changed. Digital currency or cryptocurrency has become really common. This new mode of currency may seem like a convenience, but it has assisted in the rising of fraudulent activity and money-laundering. In order to stop financial crimes related to fiat currency, there are rules and regulations knows as know your customer (KYC). KYC crypto should be a requirement as well to make the mode of digital currency safer. In this blog, we will talk about the criminal endeavors through cryptocurrency and how KYC can be the answer to this problem.

Financial Crimes and CryptoCurrency 

Financial Action of Task Force, FATF has defined cryptocurrency as virtual assets. It is a digital representation of value. Due to this, it can be traded and used for the purpose of investment or payment. It can be used for exchange but it will not be considered a representation of fiat currency. 

Anonymity and pseudonymity in the cryptocurrency have led to financial crimes. This has concerned global regulatory bodies. They are looking to implement an identity verification solution to these modes of currency to eliminate the financial crimes related to it. 

Money laundered through cryptocurrency has been up to $761 million in 2018. A blockchain analytical firm states that in 2019, criminals have laundered up to $2.8 billion. It is expected that 202 will face a record-breaking value regarding crypto crimes. 

What criminals do is that they put their illegally obtained money into the crypto exchange system. Since the source of the currency is anonymous it cannot be traced. They exchange their funds from one crypto exchange to another. This way the origin of the funds remains anonymous. Money stolen or gathered through illegal gambling can be cleaned through this process. 

The Requirement of KYC Crypto

FATF has issued recommendations to all its member countries regarding KYC/AM. They require them to apply KYC/AML compliance similar to the regulations related to other financial sectors. In the fifth Anti-money Laundering Directive (5AMLD), the regulatory authority of the EU has introduced the regulations related to cryptocurrency. 

Another regulatory body FincCen has given out the cryptocurrency regulatory guidelines since 2013. According to them, it is still a money service business and it must be viewed under the same perspective as other money businesses hence they must be compiled with KYC/AML regulations. FinCen also recommended that the law of The Bank Secrecy Act must be implied on the crypto exchange as well. The same verifying the identity of all the parties must be a necessity. 

KYC Crypto 

Most criminals take advantage of the untraceable transactions related to crypto exchange. The anonymity factor is somewhat of a flaw in this new mode of currency. This is why an identity verification solution is required and then the monitoring of the people involved should also be applied.  

There are artificially intelligent KYC solutions available that can perform these verifications within minutes. They can verify the user’s identity based on the following steps:

  • Face Verification

Face verification can be done through the selfie of the person or a video of the person. AI technology can verify the person’s face through face recognition technology. 

  • Document Verification

The document of the person can verify their identity. The person has to submit the picture of the document and it verified by matching it with the previously submitted documents. AI technology can also verify the authenticity of the ID document and does document attestation

  • Address verification

Address verification not only verifies the identity of the individual, it can also verify their address. The person has to submit a secondary document along with their ID document. This secondary document can be a utility bill or bank statement. The address is verified through this. 

  • Anti-money Laundering

AML checks verify the identity of the person and monitor it against the global watchlists provided by global regulatory bodies. If the person has been involved in any money laundering activity before they will not be verified.

KYC crypto is an identity verification solution in crypto exchange to eliminate illegal activities, fraudulent activities, and other terrorist activities. 

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