Category: Blockchain

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Identity Verification Process for Crypto Exchanges

crypto exchanges

Since the beginning of 2021, cryptocurrency exchanges have been growing at an alarming pace. And there were over 100 million crypto users in January 2022. While the market has slowed down, the crypto industry is still growing, and chances are there will be another huge spike in the number of customers.

To handle these increases in trading consumers, crypto companies need to have infrastructure and technology. Compared to stock markets and other exchanges that have had several years to build a proper infrastructure, these companies don’t have the infrastructure to handle customer transactions. Even though there has been a crypto downturn, the market is expected to turn back again.

This is why crypto exchanges need to have an identity verification process. Most of the time, this makes the onboarding process tough for customers. These ID procedures, if not completely automated, slow down the customer onboarding process, which leads to an enhanced customer drop-off rate.

In this article, we will mention how some of the best crypto exchanges handle the ID verification process. What steps are they using, and how easy is it to sign up for the customers.

What Are Crypto Exchanges?

Crypto exchanges are like an eCommerce platform for cryptocurrencies. There are different types of crypto exchanges. Some allow users to buy and sell Crypto using Fiat currency (U.S. dollar, Euro, or Pound), and some require users to trade strictly using digital assets.

As cryptocurrencies have exploded, multiple crypto exchanges have popped up in the last decade. They function similarly to e-brokerages that offer a range of financial tools. 

Let’s break down the types of crypto exchanges:

  • Centralized exchanges (CEX)
  • Decentralized Exchanges (DEX)
  • Hybrid Exchanges

Importance of Identity Verification for Crypto Verification

Cryptocurrencies are decentralized by their nature, so crypto exchanges have to add some level of security during user onboarding. This is done to ensure customers don’t use crypto exchanges to commit crypto fraud. 

ID verification for crypto platforms is crucial to ensure there’s security, compliance, and user trust. The primary reason behind ID verification is that it helps:

  • Preventing fraud
  • Money laundering
  • Terrorist financing
  • Meet KYC & AML regulations

General Key Steps in the Identity Verification Process

The goal of the identity verification process is to collect information, verify it against databases and documents, and use the latest technologies to prevent risks of fraud.

Here are the general steps of identity verification:

1. Collect information

The first step in the identity verification process is collecting relevant information like Name, DOB, SSN, Identity documents, Address documents, and more. 

2. Document verification

Use online document verification tools like DIRO to instantly verify collected documents such as: 

  • Identity documents
  • Address documents
  • Bank account documents

Document verification helps in confirming that the information provided by the users is correct. 

3. Risk assessment

Based on verified information, the organizations assign a level of risk to the individual profile. Based on the level of risk assigned, the user is put under different types of due diligence. 

4. Ongoing monitoring

In specific circumstances, customer accounts or financial transactions, businesses set up ongoing monitoring of user activity. This is usually done for accounts with a higher level of risk associated to prevent fraud.

Challenges in Identity Verification

The online identity verification process, while convenient, is also full of challenges. Fraudsters keep trying new things, emerging technologies, and evolving regulations all pose challenges for ID verification.

Sophisticated fraud techniques, data breaches, and the complexity of verifying identities across multiple layers pose significant hurdles. Here’s a deeper breakdown of key challenges:

1. Fraud & Sophistication of Attackers

Fraudsters rely on sophisticated techniques like deepfakes, forged documents, and proxies to commit fraud. This means organizations always have to stay multiple steps ahead of the fraudsters if they want to maintain security. 

2. Evolving Tech & Data Privacy

Multiple large-scale data breaches that happen annually make it tough for businesses to maintain security. Users are also becoming increasingly concerned about how organizations control and handle their data. Organizations have to comply with various regulations like GDPR, which can make it challenging to verify identities while complying with the latest regulations. 

3. Balancing Security & User Experience

Businesses need to find a fine line between balancing security and user experience. Too many layers of security and customers would have a poor experience during onboarding. However, if there’s too little security, the business could be vulnerable to fraud.

Best Crypto Platforms with Identity Verification

1. Coinbase Verification

Coinbase was founded in 2012, and it’s a US-based digital currency and wallet platform. It has over 56 million users and has traded over $335 billion worth of digital currencies in the first quarter of 2021. In late 2021, the company went public, which is the first platform to do so. 

While Coinbase has some account limitations, these limits are determined based on the level of verification that’s added to the account. These include account age, purchase history, payment methods, and other factors. 

The type of verification that Coinbase offers includes phone number, personal details, and photo ID. If you live in the USA, then you’ll also be asked to provide your SSN.

2. Kraken Verification

Kraken is a US-based crypto exchange platform, and it was founded in 2011 and has over 50 currencies. This platform claims that they’re one of the largest Bitcoin exchanges in Euro volume. The exchange has four levels of accounts, with each one of them offering different types of verification requirements. The levels are:

  • Starter
  • Express
  • Intermediate
  • Pro

The account levels depend on the level of access your account will have. Each level offers more funding options and higher limits, with Pro being the highest level. 

A user must be at least 18 years old to register and use an account. All the accounts need an email address, full name, date of birth, phone number, and postal address for verification purposes. Except for starter accounts, they also need to provide employment information and an SSN.

The intermediate and Pro accounts need to provide a valid ID, a utility bill for proof of address, and a face photo. Pro accounts need to fill in the KYC questionnaire. 

3. Binance Verification

Binance is a famous crypto exchange platform that combines digital technology and finance. According to Yahoo Finance, Binance is the world’s biggest crypto exchange when it comes to trading volume. 

Binance has three levels of verification with respective deposit and withdrawal limits:

  • Basic: Requires name, address, date of birth, and nationality, and has a lifetime limit of USD 300.
  • Intermediate: Requires an uploaded picture of ID documentation such as a passport, ID card, or driver’s license.
  • Advanced: Requires proof of address documentation such as bank statements and utility bills.

4. Bitfinex Verification

Bitfinex is another crypto exchange that came into existence in 2012. They state that they’re one of the largest exchanges by volume for trading Bitcoin against the US dollar. It offers exchange trading for 38 currencies/tokens and also provides margin trading, margin funding, and an over-the-counter market for large trades. To withdraw or add fiat currencies to an account, ID and document verification are needed. Most of the time, this verification process takes up to 2-3 days. 

Although a user can easily deposit, trade, and withdraw cryptocurrencies immediately upon account opening with a basic account that only requires a valid email address. Individual account requirements tend to differ depending on the type of account you’re choosing:

  • Age: You have to be at least 18 years old to have an account
  • Personal Information: A user’s telephone number, email address, and residential address
  • Identification: Two types of government-issued ID with a photo, such as a passport, a national ID card, a driver’s license, a residency card, or an employment permit card.

5. OKEx Verification

OKEx was founded in 2014, and it’s one of the biggest digital currency exchanges by trading volume. It serves millions of users in over 100 countries, and it operates out of Hong Kong. At OKEx, the identity verification process contains a couple of rules and procedures that facilitate a secure trading environment for our users, who need to perform ID verification for the following activities:

  • Buying currencies on OKEx with fiat currencies, for which users may need to perform ID verification
  • Making daily crypto withdrawals of more than 10 BTC

OKEx doesn’t require identity verification for users to deposit or trade crypto on OKEx. For individuals, there are several levels of ID verification:

  • Level 1: In level one, the users are required to enter their nationality, name, and document identification number.
  • Level 2: In level two, users are required to verify themselves with photo identification, and they’re also required to perform facial verification.
  • Level 3: After completing the first two levels, users have to read the disclaimer on OKEx’s mobile app or web page to complete the third level of ID verification.
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How Bitcoin is Used for Money Laundering?

Bitcoin Appeal to Money Launderers

Bitcoin, the world’s first decentralized digital currency, has gained immense popularity since its inception in 2009. Initially hailed as a revolutionary alternative to traditional currencies, Bitcoin’s anonymity and decentralized nature have also made it an attractive tool for illicit activities, including money laundering.

Introduction to Bitcoin

Bitcoin operates on a peer-to-peer network, utilizing blockchain technology to facilitate secure transactions without the need for intermediaries like banks. Its decentralized nature and cryptographic security have led to widespread adoption, with millions of users globally.

Understanding Money Laundering

Money laundering is the process of concealing the origins of illegally obtained money, typically by transferring it through a complex sequence of banking or commercial transactions. The primary goal is to make the funds appear legitimate.

Bitcoin’s Role in Money Laundering

Bitcoin offers a level of anonymity and pseudonymity unmatched by traditional financial systems. Transactions are recorded on a public ledger, but the identities of the parties involved remain largely anonymous. This anonymity makes it challenging for law enforcement agencies to track illicit activities.

Dark Web and Bitcoin

The dark web, a hidden part of the internet accessible only through specialized software, has become synonymous with illegal activities such as drug trafficking, weapons sales, and money laundering. Bitcoin is the preferred currency for transactions on the dark web due to its anonymity and ease of use.

Challenges in Regulating Bitcoin

Unlike traditional currencies, Bitcoin operates outside the control of central banks or governments. This lack of centralized authority poses significant challenges for regulators seeking to combat money laundering and other illicit activities. Additionally, the pseudonymous nature of Bitcoin addresses makes it difficult to trace transactions back to their origin.

Addressing Money Laundering Risks

To mitigate the risks of Bitcoin-related money laundering, various blockchain analysis tools have been developed to trace transactions and identify suspicious activity. 

Additionally, regulatory measures, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, are being implemented by cryptocurrency exchanges and financial institutions.

Real-world Cases of Bitcoin Money Laundering

Several high-profile cases have highlighted the use of Bitcoin for money laundering purposes. For example, the Silk Road, an online marketplace notorious for selling illegal drugs and other contraband, relied heavily on Bitcoin transactions to facilitate its operations.

Impact on Financial Systems

The rise of Bitcoin and other cryptocurrencies has raised concerns among traditional financial institutions and regulators. The decentralized nature of Bitcoin challenges the existing regulatory framework, prompting efforts to integrate blockchain technology into mainstream financial systems.

Future Outlook

As Bitcoin continues to evolve, regulators are working to adapt their strategies to address the unique challenges posed by cryptocurrency-based money laundering. Innovations in blockchain analysis and regulatory frameworks offer hope for combating illicit activities while preserving the benefits of digital currencies.

UNDERSTANDING BITCOIN AND ITS APPEAL TO MONEY LAUNDERERS

Bitcoin is a decentralized digital currency that allows for peer-to-peer transactions without the need for intermediaries such as banks. 

Its features—anonymity, borderless nature, and the difficulty of tracing transactions—make it attractive for money laundering.

Key Features Attracting Money Launderers

1. Anonymity: While Bitcoin transactions are recorded on a public ledger (the blockchain), the identities of the participants are masked behind cryptographic addresses.

2. Ease of Transfer: Bitcoin can be transferred globally without the need for regulatory oversight, making it ideal for moving funds across borders.

3. Liquidity: Bitcoin can be easily converted into fiat currencies through exchanges, providing liquidity to laundered funds.

Step-by-Step Process of Bitcoin Money Laundering

1. Placement: Introducing Illicit Funds into the System

  • Cash-to-Bitcoin Conversions: Criminals purchase Bitcoin using illicit cash through peer-to-peer platforms or Bitcoin ATMs. These methods often require minimal identity verification.
  • Structured Transactions: Breaking down large sums into smaller amounts to avoid detection, then purchasing Bitcoin.

2. Layering: Disguising the Origin of Funds

  • Mixers/Tumblers: These platforms mix a user’s Bitcoin with others, making it difficult to trace the origin. Tumblers take a fee and return “clean” Bitcoin to the user.
  • Chain Hopping: Converting Bitcoin into other cryptocurrencies (e.g., Monero, Zcash) known for enhanced privacy features, then back to Bitcoin or another cryptocurrency.
  • Multiple Wallets: Transferring Bitcoin through a series of wallets to create a complex trail that obfuscates the source.

3. Integration: Reintroducing Laundered Funds into the Economy

  • Conversion to Fiat: Selling Bitcoin on exchanges to convert it back into fiat currency, then depositing it into bank accounts.
  • Investment in Assets: Using laundered Bitcoin to purchase high-value items like real estate, luxury cars, or art, which can later be sold for clean money.
  • Online Gambling: Using Bitcoin to gamble online and then cashing out the winnings, which appear as legitimate earnings.

Tools and Techniques in Bitcoin Money Laundering

  • Mixing Services (Tumblers)

Tumblers break the link between the sender and receiver by pooling bitcoins from multiple users and redistributing them in random amounts.

  • Privacy Coins

Cryptocurrencies like Monero, Zcash, and Dash offer enhanced privacy features that hide transaction details, making them popular in the laundering process.

  • Decentralized Exchanges (DEXs)

These platforms allow for cryptocurrency trading without the need for intermediaries, reducing the likelihood of identity verification and increasing anonymity.

  • Peer-to-Peer (P2P) Platforms

P2P exchanges connect buyers and sellers directly, often with minimal regulatory oversight, making it easier to convert illicit funds into Bitcoin.

Challenges in Combatting Bitcoin Money Laundering

  1. Regulatory Gaps

The decentralized and international nature of cryptocurrencies makes it difficult for regulators to enforce anti-money laundering (AML) laws uniformly.

  1. Technological Sophistication

Criminals continually develop new techniques to stay ahead of law enforcement, such as using advanced encryption and leveraging new blockchain technologies.

  1. Jurisdictional Issues

Different countries have varying levels of regulation and enforcement, allowing criminals to exploit these disparities.

Regulatory and Technological Countermeasures

  1. Know Your Customer (KYC) Policies

Many exchanges now require KYC verification to link identities with transactions, making it harder for criminals to operate anonymously.

  1. Blockchain Analytics

Firms specializing in blockchain forensics track and analyze transaction patterns to identify suspicious activities and link addresses to real-world identities.

  1. International Cooperation

Governments and regulatory bodies are increasingly collaborating to share information and develop unified approaches to tackle cryptocurrency-based money laundering.

Frequently Asked Questions

  1. Q1. How is Bitcoin different from traditional currencies regarding money laundering?

    Bitcoin offers greater anonymity and ease of use compared to traditional currencies, making it more appealing for illicit activities.

  2. Q2. Can Bitcoin transactions be traced?

    While Bitcoin transactions are recorded on a public ledger, the identities of the parties involved remain pseudonymous, making tracing transactions challenging.

  3. Q3. Are there legitimate uses of Bitcoin?

    Yes, Bitcoin has various legitimate uses, including remittances, investments, and as a medium of exchange for goods and services.

  4. Q4. How do regulators monitor Bitcoin transactions?

    Regulators rely on blockchain analysis tools and cooperation from cryptocurrency exchanges to monitor Bitcoin transactions and identify suspicious activity.

  5. Q5. What measures can individuals take to avoid involvement in Bitcoin money laundering?

    Individuals should use reputable cryptocurrency exchanges, comply with KYC/AML regulations, and exercise caution when engaging in Bitcoin transactions to avoid inadvertently supporting money laundering activities.

Conclusion

While Bitcoin offers significant benefits for legitimate transactions, its very nature opens up opportunities for money laundering. Understanding the methods and tools used by criminals can help regulators and law enforcement agencies devise more effective strategies to combat these illicit activities. 

As technology and regulations evolve, the ongoing challenge will be to balance the benefits of cryptocurrency innovation with the need to prevent its misuse for money laundering.

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Identity Verification In Crypto

Cryptocurrency exchanges serve as both magnets for fraudsters and subjects of regulatory scrutiny. To navigate this landscape effectively, it’s crucial to enhance crypto KYC (Know Your Customer) and identity verification tools, striking a balance between fraud prevention and regulatory compliance.

What Exactly is Crypto KYC?

Crypto KYC, or Know Your Customer, represents a legal obligation for centralized exchanges to authenticate user identities. The primary aim is to prevent illicit activities such as money laundering, tax evasion, and illegal funding through cryptocurrencies.

Given the involvement of monetary transactions and pseudonymous digital assets, crypto exchanges are prime targets for fraud and criminal activities. As a result, governments have enforced increasingly stringent KYC and identity verification rules.

However, these requirements are often met with reluctance by both exchanges and crypto enthusiasts. According to a 2019 Coinfirm report, 69% of crypto businesses lacked comprehensive and transparent KYC processes.

Crypto KYC Process in Action

The procedure for crypto KYC is analogous to that in traditional financial institutions, guided by regulations set by government authorities in alignment with the exchange’s geographical location.

Key elements of the cryptocurrency KYC process include:

While these checks can be carried out manually, automation through specialized KYC software is more common. Such software provides a risk-based approach and incorporates identity verification tools. 

In light of anti-money laundering (AML) requirements, combining KYC with AML checks, encompassing politically exposed person (PEP) screenings, sanction checks, and adverse media scans, further strengthens compliance efforts.

The Advantages of Employing Crypto 

KYC Integrating some form of KYC during user onboarding offers significant benefits to crypto exchanges and platforms. These advantages include:

  • Enhanced Compliance

Many jurisdictions mandate crypto KYC as a legal prerequisite within the FinTech sector. Neglecting proper KYC procedures can lead to fines or regulatory issues related to anti-money laundering and countering the financing of terrorism (AML/CFT) laws. 

  • Reduced Fraud

Robust KYC protocols act as a deterrent against various forms of fraud. Gaining comprehensive insights into customers enables monitoring and potential restriction of high-risk individuals. 

  • Fostered Trust

Implementing robust KYC measures instills confidence in customers, demonstrating the exchange’s commitment to adhering to legal standards and safeguarding their interests. 

  • Ecosystem Protection

Crypto KYC plays a pivotal role in safeguarding the financial ecosystem against money laundering, terrorist financing, and other fraudulent activities. 

  • Preserved Reputation

By showcasing diligent steps taken to secure customer assets and accounts, the exchange’s reputation is fortified and protected. 

  • Advancing The Crypto Vision

A robust KYC process can alleviate reservations that potential investors may have about engaging in cryptocurrency, thereby promoting broader participation and mutual benefits. 

Challenges Encountered in Crypto KYC Despite well-intentioned efforts, crypto exchanges face significant challenges in implementing effective KYC procedures.

Here are four key obstacles:

  1. Variety of Fake Id Types

Fraudsters exploit diverse tactics, including synthetic IDs and deepfake technology, to bypass KYC procedures and gain access to crypto exchanges. 

  1. Balancing Friction And Security

Users seek swift access to volatile markets, necessitating a delicate balance between seamless onboarding and stringent security measures to avoid customer churn. 

  1. Clash With Crypto Ideals

While crypto enthusiasts envision the technology as innovative and exempt from conventional financial regulations, regulatory bodies impose distinct standards. Exchanges may need to incentivize users to complete KYC by offering special deals. 

  1. Risk of Compliance Fines

Inadequate KYC checks expose exchanges to substantial fines. Failure to meet requirements can have serious financial implications. Regulatory scrutiny extends beyond crypto exchanges to encompass various crypto-related entities. 

In a notable example, a crypto tumbler faced a $60M fine in 2020 for non-compliance with AML standards.

Effective Tools and Features for Crypto KYC

Automated processes are standard in crypto exchanges’ KYC checks, necessitating the incorporation of the following tools and features within their KYC software:

1. ID Selfie and Video Verification

Modern identity verification vendors offer seamless integration of document verification into crypto KYC procedures. However, it’s important to note that these tools introduce a degree of friction to the user experience.

Additionally, concerns about falsification arise, as fraudsters can manipulate IDs or use stolen credentials. These checks also carry a significant cost, with automated document verification estimated at an average expense of $2 per check.

2. Digital Footprint Analysis 

Digital footprint analysis serves as a preliminary KYC check or an extra layer of security for crypto KYC. It involves uncovering hidden digital and social signals to gain deeper insights into users. Data points include email addresses, IP addresses, phone numbers, browser types, and device specifications. Notable aspects of this analysis include:

3. IP Lookup

Identifies high-risk IPs, potentially associated with harmful activity, suspicious data centers, or VPNs. 

4. Email and Phone Lookup

Flags free email providers and virtual SIM cards, aiding in risk assessment.

5. BIN Lookup

Helps establish card-issuing banks or detect invalid details, contributing to user profiling. By integrating this information and subjecting it to risk assessment rules, a clearer understanding of user risk is achieved during the crypto KYC process.

6. Device Fingerprinting

Device fingerprinting capitalizes on the unique amalgamation of hardware and software attributes within users’ devices. This distinct fingerprint can serve as a key identifier, aiding in identifying connections between accounts. 

The technology also helps identify and exclude bad actors relying on emulators and virtual machines, which are considered high-risk.

7. Blockchain ID Validation

Blockchain technology presents a novel approach to ID verification, offering potential advantages in terms of anonymity, affordability, and efficiency.

For example, HSBC’s successful experiment with blockchain-based KYC in the UAE demonstrates its potential. However, challenges remain, including limited adoption of blockchain KYC and the need for explicit regulatory approval.

8. Leveraging Digital Footprint

Analysis in Crypto KYC SEON’s track record with crypto exchanges highlights the effectiveness of digital footprint analysis in facilitating KYC checks and reducing chargebacks resulting from fraudulent credit card transactions.

Key advantages include:

  • Seamless experience: Real-time data collection via API minimizes friction for users.
  • Cost savings: Digital footprint analysis acts as a pre-filter, blocking low-quality users before engaging in more resource-intensive KYC checks.
  • Enhanced intelligence: The analysis complements manual reviews, allowing for a more comprehensive risk assessment. Users with incomplete digital footprints or obscured online presence can be subject to closer monitoring.

You can explore this approach by entering an email address or phone number below, discovering the depth of insight a digital footprint can provide about a potential legitimate customer.

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What Risks Cryptocurrency Holds to Financial Institutions and the Regulatory Landscape?

risks of cryptocurrencies

Cryptocurrency is a digital currency that’s intended to be used in buying or selling goods and services. Cryptocurrency comes in multiple forms, and it can disrupt the financial institution. As the utilization of cryptocurrency increases, so do the risks to the financial industry. The risks may include fraud losses and regulatory compliance. Fortunately, the Anti-Money Laundering act of 2020 (AMLA 2020) requires the Bank Secrecy Act to be implemented throughout the crypto industry. As crypto exchanges are being used for the sale and purchase of goods and services, the crypto businesses are now considered Money Service Businesses (MSBs). As crypto exchanges are being considered as MSBs, it states that crypto exchanges have to follow:

  • The travel rule
  • All the BSA Regulations including CDD, SARs, CTRs

How regulators will implement these regulations will be the next step moving forward. Several methods can be applied to the financial services industry to make sure that compliance is followed as per the regulatory directions.

Crypto’s Risks to Financial Service Industry

There isn’t any way to bring change in the industry without a significant amount of risk. The reason behind the huge amount of risk in the crypto industry can be credited to the widespread adoption of poor AML, KYC, and other fraud prevention methods. The reasons for this are multiple:

  • Enhanced Due Diligence (EDD) isn’t required on crypto exchanges or ATMs at this time. 
  • Regulators have to build new regulatory guidelines within the AMLA 2020 that requires crypto exchanges to operate as MSBs, although crypto exchanges don’t fit perfectly into the current framework. Additionally, crypto exchanges/ATMs being categorized as MSBs allow anonymous transactions of up to $1,000. Unless these customers exceed the $1,000 limit, then the only information required is limited to a phone number or email address. 
  • Crypto exchanges don’t fit into the definitions of MSB because they’re more like a financial institution in the way they operate.
  • Financial compliance professionals and crypto ATMs/exchanges have limited knowledge of each other. Crypto operators aren’t incentivized to monitor and report AML and fraud policies, that’s the primary reason why the need for compliance is weak in the industry. 
  • Lack of FinCEN enforcement of crypto exchanges.

It’s not only in the U.S, but illegal crypto exchanges are operational throughout the globe.

Risks to Crypto Consumers

Consumers face the most risk when it comes to the crypto industry. Crypto is a volatile industry and it exists in a non-regulated 24-hour financial market and is uninsured by any authority. Trending schemes and scams in the crypto industry are:

  • Money laundering through crypto exchanges
  • Romance scams 
  • Fake investment scams
  • Crypto for human trafficking, organ trafficking, and adult services
  • Crypto for art and antiquities money laundering 
  • Fake crypto exchanges
  • Crypto pump and dump
  • Blackmailing scams
  • Ransomware

What to Do to Eliminate Risks?

To prevent money laundering using crypto exchanges and ATMs, as well as to assist law enforcement, there are multiple detections and compliance strategies that can be used to reduce the risk from the crypto industry.

The first step to reducing risk from the crypto industry is to thoroughly screen your customers, and authenticate whether they are who they claim to be. Regulatory bodies have to pay extra attention to sanction lists, PEP lists, and high-risk countries. Complete due diligence should also be done on all clients that are onboarded to the institution. Complete due diligence also includes:

  1. Conduction through KYC/KYC checks
  2. Collecting beneficial ownership information for businesses (including parent and intermediary companies)
  3. Conducting risk analysis on politically exposed people
  4. Monitoring transactional activities
  5. Adverse media screening

All these tactics from onboarding to investigations can significantly improve the potential risk in your organization allowing you to improve compliance and reduce fraud losses. One of the major issues with the crypto industry is the lack of education in the regulatory industry. To reduce the risk of fraud, educating the crypto exchanges and businesses is essential in eliminating the risk of fraud. Investing in technologies like online document verification software and online KYC verification software is vital to reduce the risk of fraud and screen customers thoroughly.

As of right now, crypto regulations are not perfect, but changes in future regulations will help in the betterment of the industry. There are currently crypto compliance working groups that are being formed to fight fraud in the crypto industry.

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What is Blockchain? How Does It Work in Favor of Business?

blockchain for business

Blockchain for business is invaluable for entities that transact with each other. The distributed ledger technology allows participants to access the same information at any time to improve efficiency, build trust, and remove friction. Blockchain also allows businesses to rapidly scale and perform various tasks across industries. Blockchain for small business offer four main benefits:

  • Consensus: Shared decentralized ledgers are updated only after the transaction is validated by all involved participants.
  • Replication: Once a block (a block of information) is created, it is automatically created across all the ledgers for all participants in that channel. Every involved party in a business can access and share a “trusted reality” of the transactions.
  • Immutability: More blocks can be added to the chain but it is impossible to remove a block, so every transaction can be recorded permanently which increases trust among the stakeholders.
  • Security: Only trusted and authorized parties are allowed to create blocks and access the information and data stored in them. This makes blockchain technology incredibly secure.

How to Implement Blockchain for Business?

Blockchain has left the crypto market and it has gone mainstream. Industries around the world are using blockchain to transform their business operations. Blockchain provides a sense of trust, reliability, and efficiency that wasn’t possible earlier on. With the use of blockchain, businesses can reinvent the supply chain, food distribution, financial services, government data management, retail services and so much more. The benefits of blockchain in business are seemingly endless, the only limitation is implementation.

Innovative Applications of Blockchain for Businesses

Widespread blockchain use for business will change the way your business runs its day-to-day operations. Here are the most common uses of blockchain technology for business:

1. Smart Contracts

The release of the Ethereum project reinvented the word “smart contract.” The project is “a decentralized platform that runs smart contracts, applications that run exactly as programmed without any possibility of downtime, fraud or third-party interference”.

‘Smart Contracts’ are automated computer programs that can carry out the terms of any contract. What makes it even better is that these contracts will be unbreakable. Top companies like Slock, which is an Ethereum-enabled internet-of-things platform, leverage this application to allow customers to rent bicycles where they can unlock a smart lock after both parties agree to the terms of the contract. This is one of the best uses of blockchain for business.

2. Cloud Storage

Cloud storage is another brilliant application of blockchain for small businesses. One of the most innovative brands in the market named Storj claimed that “Simply using excess hard drive space, users could store the traditional cloud 300 times over.” 

The average cost of blockchain regarding cloud storage is more than $20 billion. By integrating blockchain into cloud storage, significantly reduces the cost of storing data for companies and personal users. If that’s not one of the best benefits of blockchain in business then what is?

3. Faster, Cheaper Payments

Blockchain started with Bitcoin, also it shouldn’t come as a surprise that Bitcoin and other cryptocurrencies can be used to initiate faster payments. Making crypto payments on the blockchain is beneficial when you have international or remote workers. Blockchain allows you to pay the salary of your employees in less than an hour without outrageous transaction fees associated with banking systems.

Paying employees by using cryptocurrency may help you save money in numerous ways. Plus, with blockchain, you can keep track of your transactions and payments. This way, you won’t ever overpay on your taxes or underpay. If you’re wondering how to implement blockchain in business, then you should try to move in this direction.

4. Improved Marketing Campaigns

Good marketing is crucial for your business, but the number of businesses that are competing in the space makes it harder for your business to stand out from the crowd. Businesses are usually familiar with using social media, billboards, and other forms of marketing. Blockchain may make your marketing efforts more effective. 

Blockchain can be used by marketers to keep track of client information and consumer behavior. Using this data, skilled marketers can build robust marketing campaigns that provide better ROI. Additionally, blockchain allows marketers to verify that the traffic they’re getting is real people. 

5. Fraud Mitigation

Banks, financial institutions, and other businesses can use blockchain technology for businesses to identify with whom they are working. Blockchain facilitates reliable ID Management to prevent fraud. If customer information is stored on a blockchain network, it mitigates the risk of identity theft, money laundering, financial fraud, and so on.

Any information placed on the blockchain can’t be changed, it allows people to take control of their data. Once a customer’s identity verification has been completed, other parties can use the data to confirm if they are working with a real person and not an identity thief.

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Blockchain Technology, and how does it work?

You must have heard about “blockchains” in the context of Bitcoin, Ethereum, and other cryptocurrencies. You probably must have also seen how many people have been raving about this technology. But why, what exactly is so special about this technology? Its link with cryptocurrencies has also led to many people believing that blockchain is Bitcoin. So they think that they’re getting excited about cryptocurrency. But nope, blockchain is a technology that is used in the implementation of these cryptocurrencies.

So, if you’re a newbie to this amazing new technology, read ahead and know about blockchain and its development process better.

What is blockchain technology?

Blockchain technology, also called Distributed Ledger Technology (DLT), is a decentralized digital ledger. It is a system of recording information so that it is difficult, if not impossible, to change, hack or cheat the system.

Primarily, it is a digital ledger of transactions distributed across the entire network on computer systems on the blockchain. Each block in the chain holds information on the transactions. Every time there’s a new transaction, it is recorded on the ledger of every participant. So, it is a decentralized database that is managed by the participants and hence the name, distributed ledger system.

This technology has three main ideas: unalterable history of transactions, transparency in use, and cryptographic signature. An analogy to understand this technology better is Google Docs. Suppose you create a document and share it with your friends. Here, the document is distributed and not copied and transferred. So, this way, you’ve created a decentralized distribution chain where everyone is accessing the document simultaneously.

There’s no waiting for a person to finish making changes so that others could start. All the modifications in the document are recorded in real-time, so all the changes are transparent. Blockchain is, of course, more complex, but the analogy explains the three main ideas of the technology.

Key Elements of a Blockchain:

  • Distributed ledger technology: All the blockchain participants have access to the distributed ledger and its records. The transactions are recorded only once with the shared ledger, so there are no efforts wasted in duplication.
  • Immutable records: once a transaction is recorded, no participant can make any changes in the ledger. Even in the case of an erroneous trade, a reverse transaction is made, and both are recorded.
  • Smart contracts: A set of rules are auto-implemented for speedy transactions.

How does blockchain technology work?

  • Each transaction is recorded as a “Block”:

A transaction implies a movement of a tangible (product) or intangible (intellectual) asset. So the block holds all the transaction data and answers everything- who, what, when, where, amount, and even the condition (temperature).

  • Each and every block is connected to the block before and after it

The blocks form a chain of data as the ownership of the asset changes. The blocks are securely linked together & record the exact time and sequence of transactions. There’s no scope for any alteration or any new block inserted between two linked blocks.

  • Transactions are chained together: blockchain

Each new block strengthens and verifies the previous block and hence, the entire blockchain. So, the blockchain shows its key strength, immutability, and brings forth a trustworthy ledger.

What are the types of consensus protocols?

Consensus protocols are used to validate transactions in a blockchain. A few are mentioned as follows:

  • Proof of Work (PoW): it is the original consensus algorithm in the blockchain network. It is used for a transaction’s confirmation and creation of a new block to the chain.
  • Proof of stake (PoS): it is used to reach distributed consensus and validate transactions. There are several other forms of Proof of Stake protocols like Delegated PoS, which improves the speed of block creation and leased PoS, which consumes less energy. 
  • Proof of elapsed time (PoET): this algorithm works on permissioned blockchain, and you need permission to access the chain. It covers transparency with a specific technique and assures secure login.
  • Byzantine Fault Tolerance (BFT): as per this algorithm, two nodes in a network can securely interact knowing that they display the same data. There are several other forms of BFT, like Practical BFT, Delegated BFT, simplified BFT and Asynchronous BFT.

What are the applications of blockchain technology?

Applications of a blockchain are as follows:

  • Smart Contracts: it is a code that is auto-executed when specific conditions are met during a transaction.
  • Sharing economy: you can directly engage in a transaction without the involvement of a third party (e.g., banks).
  • Supply chain audits: you can easily cross-check the claims made by the companies about their products. With the help of distributed ledgers, you can easily & quickly trace the products within the supply chain in real-time.
  • Intellectual property protection: with the help of smart contracts, you can protect copyrights & automate content sales. Thereby protecting your intellectual property.

What are the types of blockchain platforms?

Many types of blockchain platforms are available, each satisfying a particular development need. Some of the major blockchain platforms are:

  • Ethereum: open-source blockchain platform on which you can run smart contracts on a custom blockchain.
  • EOS: with EOS, you can design vertical & horizontal scaling of decentralized apps (DApps).
  • Stellar: it is an open-source distributed payment ledger that allows you to connect with payment systems.

What value does blockchain add to your platform?

  • More Transparency: the history of transactions is always transparent with blockchain. It is a distributed ledger, and all the members share the same updates in a ledger. The consensus on the network validates all the updates. Thereby, the data is secure & accurate.
  • Enhanced Traceability: you can easily track and manage your supply chain.
  • Increased Speed: the current processes are paper-based and time-consuming as they involve third parties & duplication of efforts. All these problems are eliminated with blockchain, and processes pick up speed. 
  • Reduced Costs: with blockchains, third-party involvement is eliminated. You also don’t have to engage in making documentation or checking them before transactions. And that results in cost elimination.

What is the blockchain development process?


You can refer to a custom software development company that can help you through the development process. The blockchain development process involves 9 stages:

  • Goal identification

Make a problem statement listing all the issues you wish to resolve with your proposed solution. The solution should be beneficial and improve your business. Analyze whether you should switch to blockchain technology or make a new application from scratch.

  • Select the right blockchain platform

Once you’re sure you need a blockchain solution, you need to select the right blockchain platform. The chosen platform should meet your business requirements. The choice should be driven by the problems you want to resolve, like consensus mechanisms.

  • Brainstorming ideas

The next step involves drafting business requirements and brainstorming ideas. Decide which technology components should be added as on-chain or off-chain entities on the proposed blockchain system. Create a roadmap to build the project in time. Create DFDs, conceptual workflows, and other documents to create your blockchain application.

You should decide on the language you’re going to use to develop the frontend, backend, and servers as well. For example, you can choose angular development or React Js web development services for the frontend.

  • Proof of concept

With proof-of-concept, you decide the practical applications and viability of a project. You can do that by either developing a prototype or via theoretical buildup. In the theoretical build-up, you theoretically make up different use cases to understand the feasibility of the application and explain the project’s scope and parameters.

  • Visual & technical designs

This step involves designing the look & feel of your application and making technical designs to understand the application’s technology architecture. So, you’ll create a user interface for each component of your application. You will also design APIs to integrate the UI to run an application in the back-end.

  • Development

At this stage, the actual development of your application will start. The developer needs to stick to the decided design and blueprint of the application.

The development of blockchain technology is a challenging task which is why it takes a lot of time to build it. Since blockchains are immutable ledgers, it is almost impossible to correct any corrupted data. Even to deliver a fix, you need to coordinate with all the parties in the blockchain.

So this step needs to be executed with extreme care.

  • Testing

At this stage, you’ll test whether the developed application does exactly what it is expected to do—nothing more and nothing less. Testing blockchain applications is similar to testing normal applications with a few more metrics added. For example:

  • Chain size: longer chain implies more data in it, and that implies more space requirement in the datastore. We need to determine how much space a blockchain can take after a period of time.
  • Throughput: what is the number of transactions per second (TPS). A high TPS is good, but that also means a more network load and the inability of every node to catch up.
  • Security & cryptography: code needs to be checked regularly to ensure its flawless.
  • Data integrity: all the data on the blockchain should be consistent.
  • Data propagation: distribution of data from one node to another without disruption.

Multiple software testing methods can be employed, like manual and automation testing. 

  • Deployment

The deployment phase refers to deploying the final developed blockchain application to the customer.

  • Maintenance

The maintenance stage involves providing training, customer support, and launching updates.

Blockchain technology offers a myriad of benefits, it is secure, reliable, speeds up business transaction processes, and so much more. The idea of incorporating blockchain technology in your business is appealing and indeed good. But you should know that it takes a lot of time to build an application and for everyone to warm up with it. Building blockchain software is an extensive process, and so you need to clearly define your requirements and then start with the process.

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How Cryptocurrencies are Disrupting Money Transfers?

cryptocurrencies

Using traditional methods for money transfers can be monotonous and slow. Sending or receiving money using regular bank services can take 3-5 business days. Innovative technologies such as digital wallets, third-party payment apps can transfer money faster. New banking infrastructure is disrupting the current financial landscape to improve the financial lives of millions all over the globe. The rise of cryptocurrencies has had a similar impact on the financial industry.

What are Cryptocurrencies?

In simple words, a cryptocurrency is a digital or virtual currency that’s secured by cryptography. Cryptography makes sure that the currency can’t be counterfeited or spent twice. Almost all cryptocurrencies are decentralized networks powered by blockchain technology, a distributed ledger protected by several networks of computers. One of the reasons behind the popularity of cryptocurrencies is that they aren’t issued by a central or regulated entity like banks and other financial institutions. This lack of centralization protects them from manipulation and government interference. 

Cryptocurrencies are frameworks that allow users to make faster and extremely secure payments online that are denominated in terms of “tokens”. The first-ever blockchain-based crypto was Bitcoin, which is still one of the biggest cryptos in the market currently. 

Cryptocurrencies can enhance digital payments without the need to have an intermediary like a bank or credit card company. Payments made by cryptocurrencies are more secure than payments made by banks and financial institutions. 

Cryptocurrency apps and platforms provide the user with virtual currencies and users can send these currencies to whosoever they wish to. Fund transfers are completed with minimal processing fees, thus allowing users to avoid the huge amounts charged by banks and other financial institutions for wire transfers. 

While they sound great in theory, the semi-anonymous nature of cryptocurrencies makes them a hub for illegal activities such as money laundering and tax evasion. But one of the primary reasons behind crypto’s popularity is the anonymity offered, ensuring privacy and security. Some cryptocurrency platforms offer better security and protection than others. 

Bitcoin, for instance, is an incredibly poor choice for conducting illegal activities as the Bitcoin analysis department has helped authorities in prosecuting criminals.

Blockchain and Banking: Role of Decentralized Currency in Financial Services

Blockchain technology allows untrusted parties to come together without using a middleman. By offering a ledger that belongs to no one, blockchain technology has the capability of providing unique technologies. Use cases that don’t require a high degree of decentralization can benefit by leveraging ‘distributed ledger technology (DLT).” Businesses can establish better customer monitoring by using data sharing and collaboration methods. 

Blockchain technology can disrupt the banking industry massively by providing better key banking technologies such as:

  • Payments: By using cryptocurrency for payments, customers can experience faster and better digital payments with low fees. 
  • Securities: By tokenizing the traditional securities such as stocks, bonds, and alternative assets and placing them on public blockchains.
  • Loans and Credit: By eliminating the need for intermediaries from the loans and credit industry, blockchain technology can make it possible to provide better lending options and lower interest rates. 

Customer KYC and Fraud Prevention: By collecting and storing customer information on decentralized channels, banks and other financial institutions can make it easier to verify customer information during onboarding. This can even enhance the level of security in sharing information between financial institutions.

Beyond the Hype: Cryptocurrencies and Blockchain Technologies

While it’s true that cryptocurrencies and blockchain have the capability of disrupting financial institutions, these disruptions don’t happen overnight. The cryptocurrency industry has a long way to go before becoming a streamlined service that can be used in enhancing the workflow of the financial industry. 

It may be possible for cryptocurrencies and blockchain to shift the tides of a few key services provided by banks, but this will require significant improvement in the current landscape. The future remains unclear to what degree the banks will embrace these technologies. One thing remains clear though, cryptocurrencies will have a huge impact on how the digital payment framework runs in the financial industry. 

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Blockchain for Fraud Prevention: How Blockchain Works?

blockchain for business

Blockchain technology has been around for a long time, and it is still growing. A lot of people wonder how does blockchain secure data and how blockchain works. Regardless of all its benefits, there are a lot of mixed feelings towards blockchain technology. It doesn’t matter how mixed the reviews of the technology are, the role of blockchain against fraud and the role in the global economic landscape is great. 

The growth of blockchain first came into the limelight with the rise of Bitcoin. If you’re not into cryptocurrency, you should know about the blockchain for fraud prevention. 

How Blockchain Works?

At first glance, blockchain looks complicated, but the core concept of how blockchain works is really simple. A blockchain is a type of database, to completely understand what is blockchain technology, you need to understand what is a database. 

A database is a collection of information that’s stored on a computer system. Any information that’s stored on a database is stored in a table-type manner for easier searching and filtering of data. Now you may wonder, what is the difference between a spreadsheet and a database. 

The major difference between a spreadsheet and a database is that a spreadsheet is made for a single person or a small group of people. These people can store and access limited information. In comparison to that, a database is designed to store much larger amounts of information, that can be quickly accessed, filtered, and changed quickly by any number of users at the same time. 

Huge databases achieve this functionality by using data on servers that are built on powerful computers. While a spreadsheet database can be accessed by several people, it is often owned by businesses. Now that you understand what is a database, we can move on to “how does blockchain secure data”.

How Does Blockchain Secure Data?

One of the major differences between a typical database and a blockchain is the way the data is structured. A blockchain collects information together in groups that are known as blocks, these blocks hold a set of information. Blocks have a specific amount in which information can be stored, when the storage is filled, they are chained to the previously connected blocks, all of which form a chain of data, which is known as the blockchain. 

So the question remains, how does blockchain secure data? Major blockchain features and benefits account for the issues of security and trust in multiple ways. First, new blocks are always stored linearly and chronologically. The new information is always added to the “end” of the blockchain. 

After a new block has been ended to the back of the blockchain, it is almost impossible to go back and alter the contents of the block unless it is the major consensus to do so. The reason it is considered secure is that it each block contains its own hash, alongside the hash of the block before. A hash code is built using a mathematical function that turns information into a string of numbers and letters. This is how blockchain works in banking and other financial transactions like bitcoins.

Types of Identity Theft

Another common type of online fraud is identity theft, the growing rate of identity theft is alarming. Most people aren’t even aware that their identity has been stolen after the damage has been done. Now that we know how does blockchain secures data, we can discuss how blockchain prevents identity theft. Here are the most common types of identity thefts. 

1. Driver’s License Identity Theft

Anyone that has access to your driving license can make use of your sensitive information and commit fraudulent activities. They can open credit card accounts or use the stolen identity theft if caught for reckless driving. 

2. E-Commerce Fraud

Online identity theft is basically cybercriminals stealing your information like payment details and credentials. Using this information, these criminals can make all kinds of unauthorized transactions. All these transactions will end up hurting your bank balance. This is one of the most common types of identity theft. 

3. Mail Identity Theft

Your mailbox can be vulnerable to all kinds of cyberattacks. One out of 3 identity theft is done via email. Your mailbox contains all kinds of sensitive information including bank information, several login details, or insurance data. This crucial information can be used for all kinds of fraudulent information. 

4. Social Security Number Theft

The social security number is provided to a citizen from the time of their birth. The nine-digit number contains information like financial records, including bank details and a person’s earnings. Now imagine someone gets hold of your social security number, they can use the information for all kinds of purposes. 

If they can use your financial information, they can fill in fake account opening forms or even withdraw money from a person’s account using a social security number. More than that, attackers can use your social security number to gain a tax refund. Social security number theft is another common type of identity theft.

5. Synthetic Identity Theft

Synthetic identity theft is a tricky type of identity theft. It is where an attacker mixes stolen information with fake details to create a new fake identity for committing a crime. This newly made identity can then be used to execute all kinds of fraudulent practices. 

How Blockchain Prevent Identity Theft?

Identity theft is a part of online fraud, and it is growing at an alarming pace. A lot of people nowadays are aware of data breaches, but not many are aware that identity theft occurs every two seconds around the globe. In this perilous time, the need for securing one’s identity is crucial, and the way to do that is by safeguarding your documents. Now that you know about types of identity theft, here’s how blockchain prevents identity theft. 

Blockchain against fraud technology has been taken into consideration since the rise of cybersecurity. The incredible technology holds brilliant potential for securing sensitive data from malicious activities.

Since blockchain contains digital assets including documents that are secured via powerful cryptographic keys. This is one of the primary reasons why it is harder for attackers to manipulate information stored in the blockchain. The data is stored on multiple computers on a blockchain network, so if someone wants to access crucial information, they will have to gain access on all computers which is almost impossible in all cases. Even if the hackers happen to gain access to data, any change they make to the data will be highlighted in the information. This is what blockchain unique and suitable to secure data. Now you know how blockchain prevents identity theft.

Storing any identity information on a blockchain will help both government and the public to prevent identity theft. This is how blockchain works, and the blockchain features and benefits are slowly causing it to come into mainstream adoption. 

While blockchain is still a growing technology, it has countless possibilities for securing data. As the current measures for identity information storage are being attacked and breached, the use of blockchain for fraud prevention is at an all-time high. 

Blockchain Features And Benefits

1. Blockchain Is Distributed

A blockchain is a type of distributed digital ledger which contains transaction data that is hosted on a peer-to-peer network. There is no centralized administrator so there’s no one point of failure that can be accessed for information breach. Instead of a single point, the management and authorization are spread all over the network. 

2. Blockchain Is Unyielding

Another blockchain feature and benefit is that any transaction or information recorded on the blockchain is unchangeable as the information can’t be deleted or changed. While you can create a new transaction to change the state of any asset, the new information will just be added to the chain. 

3. Blockchain can be Permissioned

Businesses of all kinds tend to deal with a lot of confidential data and they can’t have just about anyone access the vital information. So they have to find some way to make sure that outsiders can’t access their data. This is where permissions come into play. You should know that not all blockchain is permissioned. This is why permission networks can be a great solution for fraud prevention because they can restrict who can access the data. 

How DIRO Makes Use of Blockchain For Document Verification?

Till now we have discussed, how does blockchain secure data, how blockchain work, the types of identity theft, and how blockchain prevent identity theft. A major part of all the information and the data breach are documented, most of the online frauds are conducted by using fake or tempered documents. 

A person who steals an identity can open a new bank account and use that bank account for many fraudulent activities. That’s where the innovative technology for document verification by DIRO comes in. It verifies any online original information on the web with automatic user consent and impersonation checks. You can verify any bank statements, proof of address, student certificates and so much more.

Once DIRO verifies a piece of information, it provides a trusted certificate that ensures a document is original. This original document can then be shared in the form of a PDF. DIRO provides the digital document with a unique hash, which then is placed on a blockchain. use this information to verify the documents that are already on the blockchain.

So banks, financial institutions, and others can drop this PDF into DIRO’s verification engine, which verifies the information against the blockchain. DIRO’s original documents are much more secure to share as the information can’t be tampered with by attackers or anyone else. Organizations can use DIRO’s software to minimize online fraud.

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Crypto Regulations 2021: How Digital Currency Providers Can Stay Compliant?

cryptocurrency regulations 2021

Since cryptocurrency and blockchain technology has become mainstream, a lot of industry patterns have changed. Bitcoin’s sudden success in 2019 became the reason for the development of more than 2,000 cryptocurrencies. There is mixed opinion about the trail of digital funds, most governments are hesitant about the use of cryptocurrencies. Digital assets (cryptocurrencies) offer anonymity, so cryptocurrencies can be used for money laundering, terrorist funding, and so on. As the market value and popularity of crypto are growing, investors worldwide are seeing it as a good investment option. Regulations surrounding the crypto industry are also growing at an exponential rate, if some challenges are met with strict regulations, cryptocurrencies can change the current flow of the banking industry. 

The U.S government has taken stern measures in ensuring cryptocurrency regulations. Individual states in the U.S and the EU can impose their regulatory laws regarding crypto. The U.S government has shown a positive approach towards cryptocurrencies and blockchain technology. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Ethereum, Bitcoin Cash, Ripple coin, and so on. 

Despite the trust in digital currency, the U.S Government has some concerns regarding the protection of the users. Some of the major concerns regarding crypto are:

  • Crypto-asset funds provide users with a huge level of anonymity. This level of anonymity works in the favor of fraudsters, money launderers, and those who fund terrorist organizations. 
  • Digital currency transactions are irreversible. If the funds are transferred to a fraudster or a scammer, there’s no way to get the money back.

National Defense Authorization Act (NDAA) 

Even though there are some concerns, the government knows that there has to be some level of compromise for compliance. Last year, the congress passed the National Defense Authorization Act (NDAA) for the fiscal year 2021. The act is for tackling terrorism and preventing fraud. Some rules enlisted in the act will affect the ownership and usage of crypto-asset funds, ownership, and usage of crypto and other blockchain platforms: 

  • FinCEN is to collect information and create a database of cryptocurrency companies. Organizations that own, operate, or transact using Cryptocurrencies will have to register with FinCEN to keep operating.
  • The cryptocurrency regulations are not just for the big operations. Even smaller companies are required to provide UBO information.
  • The NDAA act prohibits falsifying, concealing, misrepresenting, or attempting to hide and falsify information.
  • Whistleblowers can get up to 30% of the money in cases where the penalties are more than $100,000. Although the information should be about BSA/AML/CFT regulation violations.
  • Cryptocurrency companies have to report cases of suspicious activities using digital assets.
  • FinCEN (Financial Crimes Enforcement Network) has the authority to punish the firms that don’t comply with current cryptocurrency regulations. The penalties will be based on the violation of the rules.

Additional Cryptocurrency Regulations that Firms Have to Follow

The latest NDAA act can be considered just a start for the regulation of cryptocurrencies. Some rules regarding regulation and ownership of crypto assets can be amended.

  • Provision of information on transactions of more than $3,000. This information can include the contact information of the customer, the type of crypto asset funds used, and the time of the transactions. The level of information is not just limited to the above-mentioned factors.
  • Banks and other money service businesses will have to report transactions that are of more than $10,000 to FinCEN. The time duration for reporting is within 15 days from the date of the transaction.

FinCEN also announced that they are planning to amend BSA’s Foreign Bank and Financial Account regulations. Individuals and entities that possess crypto for more than $10,000 will declare it as their asset. Reporting assets without including cryptocurrencies is a clear violation of FinCEN policies. Now that FinCEN can punish the organizations, the best step is to punish them.

How Can Companies Stay Compliant?

The list of laws that cryptocurrency firms have to follow seems endless and excessive. But Cryptocurrency regulations are focused on making sure that compliance standards are met across all providers. Some of the laws in the new act are against the fundamental principle of blockchain and crypto-assets. Blockchain and cryptocurrency provide users with the authority of deciding who has access to their data. But with the government asking for a database defeats the purpose.

There are other concerns regarding cryptocurrency regulations. One of the biggest questions is how does the government regulate platforms when the government can’t verify the information? According to a report, 46% of legislative decision-makers don’t like the automated authentication process of blockchain and cryptocurrencies. And a further 21% don’t trust automated authentication at all.

Digital currency providers are facing a huge issue, as they can’t decide whether to comply with the regulations or stick with the fundamentals of cryptocurrencies and blockchain? Here are the things that digital asset providers can do to stay compliant.

  • Stay up to date with the latest developments in the cryptocurrency regulations
  • Make it a priority to inform stakeholders of minor and major changes in cryptocurrency regulations.
  • Use the US dollar as a unit of conversion while providing reports of suspicious activities.
  • Implement strong user verification procedures and place restrictions that comply with the law. 
  • Report any suspicious cases as demanded by the law.

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Top Use Cases of Blockchain Technology in the Banking Industry

top use cases of blockchain in banking industry

Blockchain or DLT (distributed ledger technology) is an open ledger that keeps track of transactions between two parties permanently. A blockchain is made up of multiple individual blocks all tied up to each other in a specific order. All the involved parties can share the online ledger using a computer network without any middlemen or intermediaries. This leads to faster transaction processing. Improved transaction speed is just one of the many benefits blockchain technology has to offer for the banking industry. 

How Banking Can be Improved with Blockchain Technology?

The overall benefits of blockchain technology make it clear that banking should be the first industry to fully implement blockchain. Blockchain can improve almost every single aspect of the banking industry and make it more secure and transparent. 

Blockchain technology has global implications and it can make trade more seamless and efficient by eliminating the need for documentation relied processes. A public blockchain can be of great use as no single person owns it and every involved party can access the information. Just a decade ago, blockchain technology was associated with digital assets like Bitcoin or Ethereum. That has changed now, utilization of blockchain in banking can enhance a lot of aspects.

Use Cases of Blockchain Technology in Banking

1. Faster Payments

As of now, sending money from one bank to another bank or sending money from one country to another is a huge hassle. By establishing a decentralized channel (cryptocurrencies) for payments, banks can use new technologies to facilitate faster payments. Wire transfers today cost $25-$50 based on the institution and the country you’re sending money to. The use of blockchain can reduce the time taken for payment processing and lower the cost incurred. 

By implementing blockchain, banks will be able to reduce the need for verification from third parties. Back in 2016, 90% of the European payments council believed that blockchain can change the banking industry in the next 10 years. 

2. Clearance and Settlement Systems

Instead of using existing protocols like SWIFT, banks can use blockchain to settle transactions directly and keep track of them more efficiently. 

Even the largest banks globally have to face tons of challenges while moving money around. Something as simple as a bank transfer has to go through several intermediaries and meet compliance regulations before finally reaching the destination.

The centralized payment processing method “SWIFT” processes only payment orders. The money is passed using a series of middlemen. Each of these transactions costs money and takes up a lot of time. Blockchain can allow banks to keep track of all transactions worldwide. Banks can eliminate the need for intermediaries and regulatory bodies to process and settle transactions instantly. 

3. Buying and Selling Assets

By eliminating the middlemen and asset rights transfer, blockchain technology lowers the asset exchange fee. According to studies and reports, using blockchain for moving securities can help in saving more than $20 million annually in global trade process costs.

It is not easy to buy and sell digital assets like stocks as most of the process requires keeping track of which entity owns what. In the earlier days, the purchase and sale of assets were done with a complicated network of middlemen and exchanges. All these transactions revolved around paper documentation. 

Being able to do the same thing electronically is tough and most of the time, buyers and sellers have to rely on a third party to keep track of documentation. Blockchain technology can change the financial industry by keeping decentralized data of digital assets.

4. Blockchain for Accounting and Auditing

Out of all the aspects of online banking, accounting is one section that has been especially slow to move toward digitization. To digitize the accounting process, a series of regulatory requirements involving data integrity and validity have to be met. The implementation of blockchain can bring drastic changes to the accounting and auditing sector as well. 

Industry experts believe that the implication of blockchain technology can simplify compliance and smoothen bookkeeping systems. Instead of maintaining separate records of transaction receipts, firms can add the information in a joint book. All the entries made will be decentralized and accessible to involved parties. 

Thus, the records will be more visible and secure. Blockchain technology will play the role of a digital notary that verifies all the transactions. 

5. Digital Identity Verification

Most banks, firms, and financial institutions still rely on antique, paper-based manual document verification for customer ID verification. A sluggish process that is full of friction forces customers to switch to another organization. With blockchain integration, both companies and customers will enjoy a faster, more secure, and more efficient customer verification process. Blockchain will allow other organizations to reuse customer data for customer verification for other services. 

Future of Blockchain In Banking

Banking industry experts believe that blockchain technology will improve some banking standards, but only if several conditions are met. To use blockchain to its full extent, banks need to build infrastructure that can support and operate a global network. A thorough implementation of blockchain is enough to bring huge changes in the banking industry.