What Does the Future Hold for Crypto KYC?

Crypto KYC has become far more commonplace in 2023. This is due to crypto companies becoming an increasingly significant element of the financial system, while terms like BTC, ETH, of NFTs have also become broadly known across the world.Virtual asset service providers (VASPs for short) have played a crucial role in crypto’s growth and as crypto exchanges, and crypto wallets sprout so do new ways to use virtual assets illegally.Money launderers are known for how quickly they can adapt themselves to new paradigms in finance, and within crypto, it is in no way different.Sophisticated new ways of using virtual assets have prompted governments throughout the world to attempt to bring virtual asset service providers under AML regulations (anti-money laundering).Subsequently, in virtue of said regulations, having <a href=”https://www.financemagnates.com/fintech/payments/kyc-and-why-it-matters/” target=”_blank” rel=”follow”>Know Your Customer</a> (KYC) procedures became mandatory.What Is the Future of KYC in Crypto?KYC data refers to the data collected from Virtual Asset Service Providers throughout their onboarding and transactions which verifies client identity. This due diligence happens on account of process compliance with the regulatory framework at hand, namely with what concerns Customer Due Diligence (CDD). KYC intended purposes are simple: to identify clients and perform a verification check before granting them access to a service or to conduct a transaction. The KYC Process ExplainedCrypto regulation can drastically differ from one jurisdiction to another and it is important to understand that clients will also be required to submit different types of data.Usually, the absolute minimum KYC data gathered is a client’s full name, his or her date of birth, and their residential address. The data is crosschecked with government-issued documents which the client must also submit.Traditional Steps in Crypto KYC Onboarding ProcessThere are different stages in a KYC onboarding process, depending obviously on which company is performing it and the jurisdiction in which it operates.Generally speaking, onboarding starts with the identification stage in which the client submits his or her personal data. Usually, the client is asked to take a photo of their government-issued document and submit it.The said document is checked for issues, mistakes, and so forth as a way to attest to its authenticity. The data on the document in question is crosschecked with user-submitted data as well.Depending on the client’s address, it will be determined if he or she is currently located in a high-risk country.Finally, there is usually a liveness check in which the user needs to prove his or her actual presence and a risk scoring stage in which the client is assessed with a risk category on the basis of the whole evaluation.What Types of Crypto KYC Checks Are There?In essence, KYC procedures can be either manual and/or automated.Both options have their pros and cons.Manual checks are much slower than automated ones. They are also costlier, and slightly more error-prone as human involvement leads to higher error rates.As for automated KYC processes, they are known for bringing costs down while speeding up onboarding.The process is designed to extract data from the documents users provide and compare the said data and documents to templates. Why Do Crypto Companies Need KYC?A KYC check is usually mandatory in most jurisdictions. Thus, users aren’t allowed to buy crypto or withdraw their funds before completing and passing a KYC check.But, even with legal obligations aside, being KYC compliant is incredibly helpful to crypto companies in many ways as the transparency it provides prevents money laundering and financing terrorism, helps in the fight against fraud, and boosts overall trust in both clients and investors.Should You Engage with Crypto Companies Operating without KYC?Non-KYC exchanges are normally unregulated and decentralized. They usually sprout in countries in which AML regulation is lacking (or almost non-existent).There are several risks of using non-KYC platforms, but the main one is the heightened vulnerability that clients have to criminals. Wrapping UpCrypto’s very nature lies in its inherent decentralization. It seems fairly certain that embracing KYC is in the cards for cryptocurrency as it adds transparency while protecting the user.Many countries have stated their message loud and clear as they pursue AML requirements and legislation which further tightens KYC and crypto together.With Web 3.0 on the horizon, however, the topic of decentralization rises again as does the fascinating new concept of online self-sovereign identity (SSI).Will regulators consider that approach when dealing with KYC and crypto? That will most likely be the main question going forward.As for now, crypto-related businesses that ensure AML compliance are unquestionably the highest ranked amongst user and investor trust, and while being fully compliant might be a hard endeavor, it seems incredibly beneficial.

This article was written by Pedro Ferreira at www.financemagnates.com.