Why the Crypto Market Needs KYC and How to Stay Anonymous without Breaking a Law
15 June 2022 - 08:21PM
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Anonymity became a barrier, standing in the way of cryptocurrency
mass adoption by the traditional financial market. At the same
time, abandoning confidentiality contradicts the core concept of
digital assets. To satisfy interests of both cryptocurrency users
and regulators, a trade-off was needed. The solution has already
been created. Let’s dive deeper and learn how to remain anonymous
in the crypto market without breaking a single law. What is KYC and
what does it have to do with cryptocurrencies? The abbreviation KYC
stands for Know Your Customer. This definition is often used in the
context of the financial market. KYC refers to a range of processes
aimed at ascertaining the identity of the person who plans to
conduct a financial transaction. Cryptocurrencies are a financial
instrument that, by the covenant of the founder of Bitcoin Satoshi
Nakamoto, should be anonymous. From regulators’ point of view,
fully confidential transactions carry risks associated with money
laundering, terrorist funding, and other illegal activities. That
is why governing authorities need to pipe cryptocurrencies’ users
through KYC procedures. Crypto market participants are also
interested in having convenience for all parties — users and
regulators — relating norms for person identification. In fact, the
government can not allow the spread of an anonymous financial
instrument that they can not control due to its confidentiality.
Transacting with cryptocurrencies by following the KYC procedures
can be seen as a two-way street: crypto community members can
continue transactions with digital assets, while regulators will
receive tools to control deals with such coins. That being said,
users shall waive anonymity in that case. What is wrong with KYC in
the crypto industry and traditional market? Crypto projects,
including major exchanges, aspire to walk in a legal realm. For
that, they need to be regulators’ “friends”. The best way to gain
the trust of governing agencies when it comes to cryptocurrencies
is to operate in accordance with KYC requirements. The standard
identity verification procedure in the crypto industry entails
several steps, including the following: Providing a third party
(the platform where the registration takes place) personal data,
including surname, name, place of residency; Providing documents to
confirm the user’s identity. Also, platforms often ask users to
take a selfie with a supporting document in hand. Interesting! Many
crypto projects motivate users to go through KYC procedures by
implementing limits. For example, some trading platforms decrease
operational limits for users that have not completed the
verification procedure. Crypto project representatives create KYC
databases that might include identity supporting document scans or
other magnets for fraudsters. As a result, cryptocurrency platforms
became targets for wrongdoers. The practice has shown that even
major players can not safely maintain their clients’ KYC data. For
example, in 2019 verification documents of Binance’s users were
leaked to the internet. At first, the trading platform’s
representatives denied the leak but they had to acknowledge it
after the photos of the clients were posted. The “apologetic”
response of Binance’s team was to offer victims a lifetime VIP
membership. Many market participants hold the opinion that it was
not a fair response towards people that were at risk due to the
vulnerabilities of the trading platform. In fact, fraudsters can
use KYC data and photos for theft and other illegal activities.
Such incidents bear heavy cost to the companies’ goodwill.
Fortunately, modern organizations can avoid such failures. How to
solve the KYC problem It appears that the crypto community can not
waive KYC, otherwise cryptocurrencies would not be integrated with
the traditional financial market. At the same time, as market
experience shows, it might be dangerous to provide third parties
with verification data and photos of the documents. A solution to
this problem was offered by the Czech company Hashbon. This team
was the first to develop the concept of the digital passport
Hashbon Pass (NFT Passport). Here is how it works: A user that
seeks to get the NFT Passport transfers the personal data to a
group of approved and screened licensed verifiers. Verifiers
conduct a check and, in case of absence of red flags, issue a
digital NFT Passport. As a reminder, the non-fungible token format
ensures that the information is fixed in the digital asset on the
blockchain. The technology safeguards the register against any
falsification, therefore data from the Hashbon Pass NFT passport is
impossible to fake. Thus, guaranteeing the authenticity of
verification records. The owner of the digital passport Hashbon
Pass can present the document for verification on platforms that
follow KYC rules. In this case, third parties will have no access
to the users’ confidential data, and an NFT Passport doesn’t have
any personal info from the document submitted. Instead, the service
will be presented with the NFT Passport that verifies the identity.
In that way, Hashbon Pass ensures anonymous usage of crypto
platforms, including projects in the decentralized finance segment
(DeFi). Also, NFT Passports can be used for confidential identity
verification while working with platforms in the traditional
financial segment like, for example, banks. Other use cases for the
Hashbon Pass include anonymous lawful age confirmation and to
bypass CAPTCHA. NFT Passport Issuance and Use Cases Interesting! If
needed, for example, in the case of regulatory checks, government
agencies can request KYC data from verifiers. Here is the list of
problems that the NFT passport Hashbon Pass solves: Protection
against third party personal data leaks; Time savers: instead of
filling through registration forms, Hashbon Pass holders can just
present their NFT Passport. Hashbon Pass opportunities It appears
that Hashbon Pass offers anonymous and completely safe KYC identity
verification. Not only in the decentralized finance market, but
also in the traditional financial industry. For companies, a
partnership with Hashbon Pass allows for a simpler verification
procedure and protects clients from data leakages. All these
factors increase their appeal. The Hashbon Pass launch is planned
for the end of June 2022. Become the project’s partner to be among
the first to offer clients an easy and safe way for anonymous KYC
verification. Follow updates and request a demo on the official
Hashbon webpage.
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