Bitcoin and other cryptocurrencies are designed to be anonymous, so it can come as a shock to users that find out when they sign-up to a wallet, trading account or exchange when they are asked to provide proof of their identity.
Why is this?
The very nature of crypto currency is its decentralisation, whereby currency is not tied to a central bank. Traditional identity verification processes that check customer identity against centralised databases are at odds with decentralisation and there is often sentiment in the crypto community to oppose anything that links their physical identity to their crypto.
Unfortunately, total anonymity just isn’t possible as in many countries (including the UK and US) KYC is required by law to prevent crimes such as money laundering, identity theft, fraud and terrorism financing.
When it comes to cryptocurrencies, KYC needs to work in a way that finds a balance between privacy and legality. A recent study held amongst 25 different cryptocurrency exchanges across Europe and the U.S. revealed that only 32% perform full identity checks on their users. Companies who are not currently doing so will have to change their protocols as soon as new anti-money laundering EU regulations come into effect in 2019.
This is because in December 2017, the European Parliament’s Committee on Economic and Monetary Affairs agreed to require cryptocurrency exchanges as well as wallet providers to identify their users.
The agreement is part of the fifth anti-money laundering directive of the EU, referred to as AMLD5. It’s set to come into effect in June 2019.
This means now is the ideal time for exchanges, trading platforms and wallets to look for a simple, fast and customisable verification process such as HooYu Identify.
HooYu has extensive experience of providing KYC solutions to traditional financial services and online gaming firms and to crypto businesses also. Our research shows that half of all account applications with large financial services firms are abandoned because of inadequate data sources and cumbersome manual ID validation processes.
By blending a range of identity verification techniques into one service, our clients can pick & choose depending on their needs. This allows them to build their ideal customer on-boarding process balancing the twin objectives of security and convenience at the same time as reducing acceptance times and being available globally.