What is KYC in Digital Currency

Ever since the rise in the trend of digital currency, criminal activities like money laundering has become more common than ever. The digital currency has its advantages but unfortunately, the criminals have found their own agenda in this. This is why KYC know your customer compliance must be implemented in the digital currency to ensure that no criminal activity takes place. what is KYC? It is a method used to verify the identity of a customer or the end-user to guarantee that they are who they are claiming to be. In order to understand what is KYC compliance in the digital currency first, we need to understand the problems caused by criminals in this monetary sector? 

 

 

The Need for KYC in Digital Currency

The cryptocurrency is based on the anonymity factor. The users of crypto exchange are not identified. This is exactly what criminals take advantage of. What they do is that they open an account of a digital industry that also facilitates the fiat currency. Then they enter their illegal money into the system. The illegal money is moved around from crypto exchange to crypto exchange. Due to the anonymity factor, the original source of the money is hidden with this continuous exchange. Once that is done, the money can be mixed with the legal money and deposited in the bank. This is how with their Identity Document or Identity the criminals use cryptocurrency for their money-laundering tactics.

 

This is exactly why the global regulatory bodies like FATF are concerned. A blockchain analytic firm called Chainanalyses did research and it was discovered that money laundered in bitcoin in 2019 was around 2.8 billion USD. In 2020, the total worth of fraud in cryptocurrency and hacks was around 1.36 billion USD.

 

FATF and other regulatory bodies have given recommendations to the different nations for following KYC/AML protocols for the crypto industry as well. As the digital currency is of value, it should be treated as other monetary industry and all the regulations related to fiat currency must also be applied to digital currency. FinCEN also suggested that The Bank Secrecy ACT of 1970 must be implemented on cryptocurrency to verify the identity of all the customers. 

What is KYC in Solution?

The flaw in the crypto exchange is its anonymity factor that helps the criminals in carrying out their illegal endeavors. To eradicate this issue is what the KYC solution is there for. KYC is to identify the user and verify their identity. This way the untraceable trail of crypto exchange would become traceable and the criminals involved in this venture will be able to get caught.

 

There are AI-based e-KYC software that can now perform KYC verification within seconds while complying with all the regulations. Manual work of handling the data of all the users must be a hectic task and it could prove to be not much accurate. But artificial intelligence combined with human intelligence can now effectively verify the users and secure their data. 

 

KYC can be performed in the following way:

• Face Verification 

The face of the person can be verified with this solution. All the person has to do is to submit their selfie or a video and the AI solution can verify the face of the person by matching it with previously submitted ID-documents. Through 3D depth detection and liveness test, the authenticity of the face can be verified as well.

• Document Verification

In the Document Verification Process, the documents of the person being verified. They have to submit a picture of their government-issued ID documents and it will be verified against the previously submitted ID document at the time of registration.

• Address Verification

The address of the person is verified in this process through a secondary document that contains either their home address or business address like utility bills. 

 

Conclusion

What is KYC is the process of verifying the identity of the user and it should be implemented on the digital currency because of the increase in criminal activity.