Building Seamless KYC for Crypto: How to be Prepared
Many investors are drawn to the crypto space because of the promise of anonymity, decentralization, and return on investment, sparking an explosion in the number of crypto investors over the past few years. However, these same appeals make the space vulnerable to fraudsters who exploit even seasoned crypto veterans. The influx of capital into the crypto market has, in turn, led to a rapid growth in fraud and potentially other illicit activities.
According to the Federal Trade Commission (FTC), October 2020 to June 2021 saw consumers reporting losses of $80m due to crypto-investment fraud, and one has to imagine that number drastically underrepresents reality by some margin.
So, what does this mean for crypto investors? It means, regulation is coming.
In December last year, the Treasury Department proposed a new rule that would require users who want to move more than $3,000 in crypto from an exchange to their private wallet, or to another user, to provide detailed Know-Your-Customer (KYC) information. In addition to users providing KYC information, exchanges would be required to report single transactions, or groups of transitions, that add up to $10,000 or greater to the Financial Crimes Enforcement Network.
However, not all countries are adopting an approach around regulations. In May of this year, for example, China cracked down on Bitcoin trading and mining, causing a sharp selloff in the global crypto market. While China has not outright outlawed crypto trading on the consumer level, Chinese financial institutions are banned from trading in crypto. Why did this happen? It’s because Chinese officials sighted concerns around the ease of money laundering as a key factor in the crackdown.
While the US and Europe’s response might not be as draconian as that of China, the wild west days of the mainstream crypto space are numbered, as more and more KYC rules become requirements. KYC is not unheard of in the crypto world and, in fact, popular exchanges all over the world already require their users to submit KYC documentation which, after being verified by the crypto exchange, allows the user to purchase crypto through their credit card or bank account. One can expect KYC to become more pervasive as the space continues to grow and lagging regulators play catch up.
Does KYC actually help?
KYC can actually help solve additional issues beyond fraud and money laundering, such as problems with account recovery and lost keys. Without identifying information tying a user to their wallet, it can be next to impossible for a user to recover access to their wallet if they are unfortunately locked out. Tying KYC to a crypto wallet would eliminate this problem by allowing users to recover their wallet by verifying their ID instead of trying to remember a lost long string of characters, or access a document where this string of characters is, quite possibly vulnerably, stored.
What are the downsides?
One complaint that has been relatively pervasive has been the slow KYC verification process from crypto wallet support teams. Manually verifying individuals is a time consuming and expensive process. Not only does this cost the crypto wallet providers time and money, it frustrates the end user.
Is there a solution to this?
Luckily, there are providers that take this load off exchanges, offering them the speed and security of integrating de facto standards around authentication and verification, while saving the exchange time, money and manpower. LoginID, an API-based FIDO-certified passwordless authentication and transaction confirmation provider, is one such solution. With exchanges offering a service like LoginID, a user would be able to securely transfer crypto from their wallet, sign and hash the transaction with biometric verification such as a fingerprint or FaceID scan already available on their device. LoginID, along with their partner AuthID, take this one step further, by offering a simple to implement, consumer friendly, accurate, and economical KYC for crypto wallets and exchanges.
LoginID is a San Mateo/Toronto based company focused on bridging the gap around authenticating users and securing their information. This is facilitated through its FIDO2 and UAF certified strong customer authentication, privacy and tokenization platform. The team is composed of seasoned executives with decades of experience, across global brands, helping commercialize products around security, cryptography, payments and mobile.
With LoginID You Get:
- FIDO2 / FIDO UAF certified biometric authentication solution
- Extensive APIs and SDKs available for integration such as OpenID Connect, iOS, Android, and Web
- Detailed and thorough documentation created by developers for developers
- A scalable business model that grows with your business
- An Open SaaS plan to support start-ups
If you would like to learn more about LoginID’s FIDO2 and FIDO UAF biometric authentication, you can do so here.