Lesson 25 – Know your Customer (KYC): Why the verification process contributes to security in the crypto world 

Companies subject to money laundering regulations are must adhere to what’s known as due diligence. This requirement ensures transparency regarding the identities of those involved, forming a crucial foundation for preventing money laundering, terrorist financing, and other criminal activities. If banks and crypto exchanges were to permit the creation of accounts under fictitious identities, it would be much more difficult to combat cybercrime and financial crime.

The registration process at BISON and many other crypto trading venues

The registration process with BISON is very simple. It only requires a name, an email address, and a password. However, trading cryptocurrencies such as Bitcoin or Ethereum is not possible immediately. Verification is necessary beforehand. BISON –– and all other crypto trading platforms based in Europe –– need to know who is trading on their platform. Entering further information and a quick verification via VideoIdent ensures that customers are really the person they claim to be. In the VideoIdent process, an ID card or passport is used for this purpose. Trained staff members utilize various features to verify the authenticity of an ID card and confirm a customer’s identity. In addition to VideoIdent, we plan to introduce other identification methods, such as eID.

These identification processes have become a standard procedure in banks and have been used for many years. In the past, you had to visit a post office for verification –– today, verification can be conveniently done via smartphone. Identification is a mandatory requirement for opening any bank account, crypto account, or securities account.

What are the benefits of the KYC process for cryptocurrency customers?

Regulation helps establish cryptocurrencies in the long term

As the understanding and adoption of cryptocurrencies grow, and as the regulatory framework becomes more robust, the likelihood of cryptocurrencies and blockchain technology being used for customer interaction increases. Be it for payment, verification of ownership/shares, or as rewards for active customers. With the expanding everyday application of Bitcoin and similar cryptocurrencies, their widespread acceptance and long-term establishment become more probable. The KYC process is a vital part of this regulatory framework.

Identity theft should be prevented

Identity theft is a prevalent issue on the Internet. The legally required identification and KYC process helps prevent the theft of other people’s identities and the execution of financial activities in their names. This multi-layered security approach protects user accounts from misuse by others as effectively as technically possible.

Protection against phishing and other cases of cybercrime

You should be suspicious of unexpected requests, refrain from clicking on links blindly, avoid passing on sensitive information, and only use trustworthy websites. You should also be wary of fraudulent calls, including phishing or “vishing” attempts.

How can you recognize scammers and protect yourself?

1. Research and verification: Always find out about the person you are dealing with. Scammers often do not have a legitimate online presence.

2. Check official websites and emails: Scammers may use fake websites or emails that look very similar to official ones. Look for minor spelling errors or differences in domain names (e.g. .de instead of .com).

3. Be careful with personal information: Avoid revealing sensitive personal information such as your social security number, banking information, or passwords unless you are sure the request is legitimate.

4. Unexpected winnings or prizes are suspicious: Be wary of unsolicited messages or emails claiming you’ve won a prize, especially if you haven’t entered any contests.

5. Grammar and spelling mistakes: Scammers often use poorly written messages, which can be a giveaway.

6. Avoid rushed decisions: Scammers often create an artificial urgency to push you into making quick decisions without thinking about it. Be wary if someone insists on immediate action.

7. Trust your instincts: If something seems strange or too good to be true, it probably is. Trust your instincts and avoid engaging with suspicious individuals or offers.

8. Phone scams: Be wary of unexpected phone calls claiming to be from official organizations such as banks or government agencies. Always verify the identity of the caller before giving out personal information.

9. Email caution: Scammers often use email attachments or links to spread malware or phishing attempts. Do not click on suspicious links and do not download attachments from unknown sources.

10. Report suspicious activity: If you suspect a scam or encounter fraudulent activity, report it to local authorities and relevant consumer protection agencies.

Enhanced protection when changing personal data

To mitigate risks like identity theft and phishing, BISON plays it safe. For example, if an attempt is made to change your phone number after verification, this new phone number must undergo verification again. This process prevents criminals who have access to your credentials from easily modifying critical data, such as your address and phone number, to conduct unauthorized transactions.

Additionally, to protect your BISON account, we advise:

1. Ignoring messages from unknown sources. We assure you: We will never ask you for your password.

2. Never permitting third parties to access your account.

3. Being aware that we do not employ people to make investment decisions for you, and we will not call or otherwise contact you about such matters.

You can find more information about this topic here.

What advantages the KYC procedure offers companies

Legal requirements are a mandatory effort that must be undertaken by private individuals and companies. However, the regulations can help to give companies and customers more security.

Increased security for companies trading in the crypto environment

BISON operates within the regulated environment of the Boerse Stuttgart Group and fulfills all regulatory requirements in Germany through its trading partner EUWAX AG, also a subsidiary of the Boerse Stuttgart Group, and its banking partner Solaris. 

Preventing reputational damage from criminal customers

Criminals who use a company’s services to engage in illegal activities damage the company’s reputation and, consequently, its financial position. Since blockchains can facilitate transactions under the anonymity of private keys, logging on to a crypto trading platform without prior verification could lead to increased criminal use of cryptocurrencies. Without a verification process, platforms would be unable to monitor such activities. The “Suisse Secrets”W reports by Süddeutsche Zeitung in early 2022 exemplify the reputational risks posed by insufficient regulations.

The broader impact of crime-related news on the industry

Reputational damage is not limited to individuals. Consistent negative media coverage about an industry can have long-lasting adverse effects, eroding customer and investor trust. In the worst-case scenario, this could signal the economic downfall of the crypto industry in Germany. The KYC procedure makes it difficult for criminals to launder money or promote terrorism on German crypto trading platforms undetected. This protects the reputation of cryptocurrencies and crypto trading venues.