The cryptocurrency industry has shown growth at an unprecedented rate over the past two years. Its rapid growth has attracted many investors. Given the digital nature of the industry, many hackers and people with the intention of duping others also joined in. In fact, fraudsters are entering the industry to cheat users at an alarming rate.
As the market moves forward, scammers are also improving their skills. To ensure transparency and curb incidents of fraud, blockchain security companies began auditing users and also asked them to complete KYC. This reduced the number of con artists working in the industry.
But who are these security companies and how do they do audit or KYC?
These security companies partner with major crypto companies to audit their clients or the exchanges themselves ask their potential clients to complete the KYC process. In India, there is no government regulation of the cryptocurrency industry. Hence some crypto exchanges have deployed Know Your Own Customer (KYC) and auditing procedures to prevent dirty money from entering the market through their platforms.
Exchanges like Coinswitch Kuber ask their potential clients to complete KYC before they start trading on their platform. For KYC, CoinSwitch asks for PAN or Aadhaar card and asks the user to upload a selfie on its app. Similarly, WazirX, another cryptocurrency exchange operating in India, says it has deployed a “top-of-the-line” identity verification tool to process KYC within hours of signing up.
Others have also developed tools to verify the identities of their customers and insist that money entering the market must come from users’ bank accounts, not a third party bank account.
Some exchanges use the “penny drop” method to process KYC, which means they transfer a token amount of Re. 1 In a user’s account to find out their account details. They may ask for additional documents for corporate clients and those seeking higher transaction limits.
Exchanges also deploy high-level security software to immediately block a user if they suspect that their security guidelines are being compromised.