In the early days of ICOs, startups that used token sales to raise funds created their own set of rules and regulations as opposed to abiding by laws. This led to the rise in illegal operations like scams, frauds and money laundering as laws that regulated such sales were in its infancy and not executed appropriately. Over the past few years, the regulators have introduced certain standardization in ICO token sales. One of the standardization is Know Your Customer(KYC)/ Anti-Money Laundering(AML) process.
What is KYC?
Know Your Customer (KYC) is the process that helps business ventures verify the identity of clients and investors. This process is employed by companies of all sizes. They are mainly used in order to ensure that their potential consultants, agents, investors are compliant with the anti-bribery regulations. To ICO founders, the KYC process will help them to get to know more about the investors interested in the ICO.
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Over a small time frame, large sums of money have been traded through ICO platforms. In fact, the cryptocurrency market is estimated to hit $1 trillion at the end of 2018. When launching ICOs, the ICO founders offers crypto tokens to the general public for purchase. The offering will be mostly in form of a security token or a utility token. Utility tokens are given as a form of a digital voucher, rewarded to investors who can use it to grant rights on project’s product. These tokens don’t have any ownership rights to the project and are tradable in the crypto exchange market. Whereas, Security tokens are backed by some tradable assets with value.
Once the digital tokens are converted into real-world money, the value of the tokens commensurate to the fiat currency will be huge. A huge amount of money is laundered through the blockchain networks and transferred from one cryptocurrency to another until they are untraceable. Most of the investors can take advantage of the platform for money laundering and other frauds. Having a KYC/AML process will help the offerors get an idea of who is investing in their project. They are meant to confirm the investor’s real identity. The main agenda of having the KYC process is to preclude clients with illicit objectives and criminal background.
How does the KYC process work?
Benefits of having your ICO- KYC compliant
How to choose the right KYC provider for your ICO
How to make your ICO KYC compliant?
To make your ICO – KYC compliant, you have to collect the identity proof documents from the investors and verify the details shown in it. Depending on different jurisdictions, ICOs have to collect different documents such as proof of residence, identity proof etc. Collecting the documents from the investors (which can be 10,000s in total) can be a tedious job demanding high cost and time. Here, the Best option is to launch your ICO with an ICO launch platform like CoinFactory. The built-in KYC tools of the platform relieve you from the tedious process of KYC verification and management. It provides a seamless experience to the ICO investors to upload their KYC documents and have multiple settings to establish the dependencies between KYC verification and token purchase, token distribution etc. The platform has manual as well as AI based automated KYC verifications. Using a platform with built-in KYC functions can save you a lot of time, money and energy.
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Complying with KYC regulations provides many advantages to the offeror as well as their investors. Offerors can establish credibility with the banks. Moreover, the banks and potential regulators would be more open to token sales as long as the ‘Know Your Customer’ laws are obeyed. As more and more ICO projects are made KYC compliant, investors would be better able to distinguish between projects that are legitimate and those that are fraud. And lastly and more importantly, it can also help ICOs reach a wider audience.
