Cryptocurrency operations keep gaining momentum, with more transactions and applications than ever. Exchange platforms have a challenging task combatting dirty money and defending the reputation of digital investments.
“Know Your Customer” Standards Go a Long Way
Cryptocurrency exchanges have a fight on their hands: upholding Anti Money Laundering legislation in a virtual world of peer-to-peer transactions and secretive digital investments. Despite the challenges, India’s leading crypto platforms have given the segment an almost impeccable reputation of security and reliability. How did they do it?
Quite simply, by employing a tried and tested practice called Know Your Customer (KYC). An essential toolbox in the fight against financial crime and money laundering, KYC requires several levels and aspects of customer identification such as address, documentation, income source and many other seemingly trivial details.
As a result, bitcoin and other Indian cryptocurrency exchanges are now recognised as being more reliable than old-fashioned banks. Their verification process is reminiscent of the way bitcoin operators conduct their KYC routine, making them safer than ever by putting players through two KYC rounds.
Crypto and Anti-Money Laundering: Never the Smooth Sailing Experience
Traditional investment portfolios – e.g. fixed deposits, stocks and bonds – are held in banks’ digital accounts (called demat accounts). Cryptocurrencies, however, are shared and verified by users, kept offline in what is known as “cold wallets”. This alone makes them the preferred choice of criminal operations, with anti-money laundering procedures (AML) presenting an insufficient deterrent to trading between users and exchanges without a certified intermediary.
This has given a rise to cryptocurrency scams such as loan offers, unauthorised app access and frivolous sharing of personal KYC details with disreputable or unidentified persons. The RBI has issued repeated calls for a more careful navigation in the world of cryptocurrency investments and digital exchanges.
Crypto Exchanges Paving the Way to Better Digital Security
India’s cryptocurrency exchanges have established stringent KYC procedures for all users. Basic requirements such as ID and address are merely the beginning. Aadhar and PAN Card verification, utility bills and other proof makes exchanges such as WazirX, CoingDCX and Bitbns safer and more demanding than regular banks in handling customer accounts.
Despite complaints that such a rigorous AML approach ends up stifling investments by NRIs residing abroad, cryptocurrency exchanges prefer being reliable rather than permissive. By employing leading KYC methods such as the “penny drop” (transferring token amounts, e.g. 1 rupee, to test user ID) and Chainlink software, they quickly verify user account details as a follow up to demanding registration procedures. Corporate clients get an even more exhaustive background check, as they aim for higher crypto trading limits.
While unjustified blacklisting is still an issue (of an admittedly decreasing importance), investors of all calibre and individual cryptocurrency traders can have a much safer trading experience under the supervision of leading crypto exchange platforms. Avoiding peer-to-peer transactions can essentially protect users from the risk of ending up with illegal or dirty e-money or simply being scammed.
