No KYC with AltumBrokers

KYC (Know Your Customer) is a term used to describe a set of rules that financial institutions must follow to verify the identity of a bank account holder.

Based on the KYC information, the cryptocurrency exchange determines whether there is a possibility of using the wallet for illegal purposes by checking the user’s history.

KYC (Know Your Customer) is a term used to describe a set of rules that a financial institution must follow to verify the identity of a bank account holder, i.e. whether it is an individual or a business entity. The average person is probably familiar with providing KYC information when opening a bank account, applying for a credit card or loan, or using financial services when purchasing a vehicle. It is a very common procedure in banks that already handle fiat currency, but it is still a new regulation in virtual currency.

With AltumBrokers, you can start trading Cryptocurrencies just by opening an account online.

AltumBrokers does not require any KYC procedures, so all you need to do after opening an account is making a deposit.

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KYC in the cryptocurrency market

Bitcoin’s creator, Satoshi Nakamoto, said that cryptocurrencies should be free from the financial regulations that the government applies to the financial sector. However, a number of countries that have legalized and regulated starting to require identity verification (KYC) procedures When creating a cryptocurrency account, your residential address is usually included in your KYC information. These demands are the same as the anti-money laundering regulations that traditional financial institutions follow.

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Why is KYC important in cryptocurrency exchanges?

Based on the KYC information, the cryptocurrency exchange determines whether there is a possibility of using the wallet for illegal purposes by checking the user’s history. If the current amendment becomes a law as it is, it can be used to disclose information about holding and trading of virtual currency by account owners when filing income tax.

1. Auto-verify your identity

Automated identity verification is a convenient feature widely used by many online apps that require identity verification. Because cryptocurrency exchanges are basically online, even if you want to become a cryptocurrency investor, you cannot visit an offline exchange and submit documents.

Instead, the user can submit passport and identification documents along with a self-portrait with a smartphone through a third-party verification service. Biometric mapping technology verifies identity by comparing photos of the applicant’s identity documents.

2. Crime and tax evasion prevention

One of the concerns about the cryptocurrency space is that anonymous wallets can be used for money laundering or other illegal financial transactions. “Anonymous” refers to information constructed based on incomplete information such as fake names and nicknames that cannot verify the identity of the account holder. One of the criminal activities that can be carried out with these anonymous transactions is “ransomware,” that is, extorting funds by freezing the computer systems of certain individuals or businesses until a certain amount is paid.

In May 2021, a group of hackers hacked into the computer systems of an oil refinery at Colonial Pipeline, headquartered in the United States. Hackers completely shut down the Atlantic fuel distribution process, resulting in massive fuel shortages, panic buying and price spikes. The hackers unlocked Colonial’s system only after a ransom of 75 bitcoins was paid (about $5 million at prevailing exchange rates). Bitcoin dispersed quickly and was most likely converted into cash.

Naturally, governments and law enforcement agencies have strongly discouraged ransomware victims from paying the money the criminals demanded. However, organizations looking to get their services back have no other option. Businesses can also recover ransom payments and losses through their own insurance. Criminal gangs and other actors also know this, so they continue to use the anonymity of virtual currency to easily access and distribute stolen funds for future ransomware attacks.

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How to legalize cryptocurrency?

Therefore, applying KYC regulations to cryptocurrency wallet holders can be interpreted as a way to legalize cryptocurrency. The KYC regulation will bring the applicable regulatory items into the cryptocurrency transfer and put it on the same line as the revenue and movement of fiat currency. These provisions may not be a concern for legitimate cryptocurrency investors or traders, but may impose additional rules on returns, particularly from cryptocurrency investments and trades, during the income reporting period.

For example, if a customer pays me in cryptocurrency — I could be subject to reporting and taxation by the government. Currently, there are quite a few regions that have a form of income tax return that requires filing and reporting cryptocurrency-related income. In the United States, the Internal Revenue Service (IRS) treats cryptocurrencies as assets of value. Because we create value through cryptocurrency mining, that value is taxable. In the case of cryptocurrency trading, capital gains (revenues) accrued from these transactions are also subject to taxation. According to IRS regulations, if you are a US citizen, you must declare if the individual has a virtual currency equivalent to $10,000 or more in a cryptocurrency wallet – the IRS will report it worldwide, regardless of the country of actual residence. Income and financial assets earned by the Company are subject to tax.

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What are KYC obligations?

The pre-registration requirement for KYC is proposed for cryptocurrency account holders who wish to transfer more than $10,000 per day or an equivalent amount in other currencies. Similar to what banks in general that remit these amounts would report, like the initiative proposed by the Financial Crimes Enforcement Network (FinCEN; Financial Crimes Enforcement Networks).

The basic premise of these initiatives is that KYC registration, disclosure of gross assets and reporting of foreign transactions can help prevent tax evasion or the financing of foreign criminal groups.

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Get to know the myths about crime through cryptocurrency

Cryptocurrency-funded criminal activity has made many news headlines, raising negative views on the cryptocurrency space. As these provocative headlines were repeated by leading figures in the financial industry, the perception that cryptocurrency is a vehicle for illegal financial transactions spread faster. Governments and financial institutions have raised their voices that cryptocurrencies are an enabler of global criminal activity. Stories of terrorists, drug smugglers, money launderers, and malicious black hat hackers use cryptocurrencies to hide black money and run away on news and websites.

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What percentage of Bitcoin is used for illegal activities?

But the reality is quite different from that. According to a recently released Chainalysis report, it is estimated that 0.34% of cryptocurrency transactions (total value of $10 billion) in 2020 were related to illegal activities. In addition, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) reported in a report that the amount of cryptocurrency used for money laundering was significantly lower than traditionally laundered cash. Traditional banks have deliberately and negligently fulfill their reasonable obligation to disclose when money laundering is suspected or terrorist financing is suspected. Some banks face lawsuits for not monitoring or managing funds moving in and out of their financial institutions through strict management practices such as KYC.

The 2016 Panama Paper Leaks scandal broadened the scope of the investigation when it was revealed that overseas banks were providing “tax havens” to the wealthy, celebrities, criminals and corrupt people. By holding these funds in confidential accounts to avoid international governments, the intention may be to avoid investigations or tax obligations by law enforcement agencies in each individual’s country of residence. These foreign funds are overwhelmingly held in fiat (government-backed) currency rather than virtual currency.

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What will cryptocurrency exchanges do with KYC?

Consider the privacy features inherent in traditional finance. No personally identifiable information is required when sending funds through traditional bank transfer networks. All you need is an account number and a routing number for sending and receiving money. The account holder of the bank account does not need the personally identifiable information of the account holder to receive the remittance when remittance, and the account holder receiving the remittance does not need the personally identifiable information of the remittance holder either. However, KYC regulations applied to banks allow law enforcement personnel to obtain such information upon request. As mentioned earlier, if you transact over a certain amount, you are required to report that information to the competent authorities of the country in which your bank is located. These transaction declarations include personally identifiable information and tax identifiers of the sender and recipient.

When transferring cryptocurrencies, you can similarly use anonymity or randomly generated identifiers as your wallet name when sending or receiving cryptocurrencies. You can think of this as equivalent to using an email address that doesn’t contain your name. When sending cryptocurrency, the anonymity used as sender and recipient can be changed for each transaction, so it is not possible to easily match the same account holder for each transaction.

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Cryptocurrency Transaction Tracking

The most attractive feature of cryptocurrency trading is the anonymity of cryptocurrency accounts. One thing to understand when talking about KYC and anonymity is the privacy feature associated with the blockchain concept.

Blockchain is a way to record all transactions related to cryptocurrency. It is equivalent to a series of electronic footprints showing the movement of cryptocurrencies on a computer network at every transaction step. These transaction histories or ledgers are stored via thousands of independent computers within a cryptocurrency transfer network called nodes. Each node will hold information about a very small step in the entire journey of a cryptocurrency being transferred from sender to receiver.

This decentralized model ensures that no single node in the cryptocurrency journey can get the full path. However, the path of cryptocurrency through a note is ultimately traceable, as there is a ledger and access to all nodes where transactions are made.

Although personally identifiable information about the sender and receiver of virtual currency cannot be checked on any node or blockchain ledger, the sender and receiver account owner information can be found through the corresponding cryptocurrency exchange that applies KYC regulations. However, not all exchanges are quick to implement these regulations. Some exchanges choose not to ask for personal information, either because they operate on the dark web, or simply because they are located in countries that do not have KYC legislation.

Even if you can see a traceable transaction history or transactions for each wallet, hackers and other bad actors can quickly cash out your notes and run away before they are even identified. After dividing the funds, they are often “ mixed ” with other legitimate transactions being traded and distributed across multiple wallets until tracking itself becomes very difficult.

Even if the end-purpose wallet is tracked and identified, the funds obtained through hacking, ransomware, and scams are often long gone. It could be after you have already cashed out or bought something else of equal value that is anonymous and untraceable.

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Conclusion

Without statutes to de-anonymize wallets or the ability to quickly freeze suspicious or fraudulent transactions, law enforcement will find it difficult to block or track the flow of cryptocurrencies obtained through criminal means. The best way to avoid losses due to cryptocurrency scams is to use an exchange that implements KYC regulations. And I want you to remember the old saying: “If conditions are too good to be true, it is likely not true.”

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