Better than Yesterday #39: Prevent Financial Crime in Crypto

Welcome back to “Better than Yesterday” series, where we explore ways to improve digital knowledge. Today, we focus on preventing financial crime in the world of cryptocurrencies.

Anonymity and Financial Fraud in Crypto

Anonymity is a core feature of cryptocurrencies, sparking debates about Know-Your-Customer (KYC) procedures. While anonymity offers privacy, it also opens doors for financial fraud.

Crypto users lose over $200 million each quarter to hacks, scams, and fraud. About 94.3% of these losses are due to hacks, while 5.7% are from fraud that could have been prevented with KYC.

Can KYC Help Prevent Crypto Scams?

KYC aims to identify customers before they access crypto services. Basic information required includes:

- Full name

- Address

- Date of birth

The majority of crypto services would require more steps:

- Identification: Personal data submission

- Liveness check: Verifying the client is a real person

- Verification: Comparing data with government-issued documents

- Address verification: Confirming residence

- Risk scoring: Assessing risk based on provided data

While KYC can't eliminate all crypto scams, it significantly reduces their number. If everyone passes a KYC, withdrawing illegal crypto becomes nearly impossible, deterring criminals.

The Role of AML Tools

Criminals can move stolen coins between non-custodial wallets, but most crypto transactions can be tracked on a blockchain. Anti-Money Laundering (AML) tools detect coins involved in illegal activities, and crypto services often block these funds.

With proper KYC and AML practices, withdrawing stolen or illegal crypto becomes very difficult, helping to prevent scams.

Does Existing Regulation Help?

With the Markets in Crypto-Assets (MiCA) regulation in force, EU crypto asset service providers must implement KYC. In the USA, the SEC is increasing pressure on crypto regulations.

These regulations in developed regions aim to protect most crypto owners from scams and hacks. However, the highest crypto adoption levels are in lower-middle-income countries like Ghana and India, where regulation is often lacking.

For instance, crypto is unregulated in Ghana, leaving investors and users vulnerable to scammers.

Conclusion

Improving our defenses against financial crime in crypto requires balancing privacy and security. While KYC and AML practices are essential, global regulatory measures must address regions with high crypto adoption. 

Understanding and addressing these challenges can make the crypto world safer and better than yesterday.

About BSCS

BSCS - The fully decentralized protocol for launching new ideas. An all-in-one Incubation Hub with a full-stack Defi platform across all main blockchain networks. We provide exclusive services including IDO/INO Launchpad, Yield farming, NFT Auction, Marketplace, and BSCSwap.

BSCS operates on top of all main blockchain networks and is designed to offer maximum value to consumers and institutions.

BSCS platform uses the Sharing Economy Model for the purpose of profit-sharing, helping users to access DeFi platforms in the easiest, safest, and most cost-effective way. BSCS is the most convenient bridge to connect users and application products on all main blockchain networks.

Website | Telegram | Substack | Twitter | Discussion