What is KYC in the context of ICO?

How to launch  KYC and why do I need it – is one of the most frequently asked questions.

Anyone who has even remotely considered fundraising through a crowdsale has heard about KYC at least once. The acronym stands for KNOW YOUR CUSTOMER, and is aimed at pre-qualifying ICO participants before allowing them to become contributors.

Based on the client inquiries we receive, most of the crypto wannabes consider it a magic trick that will keep the SEC away, and the others think it’s as cool marketing trick that will draw more traffic into a crowdsale by creating a feeling of scarcity.  You wouldn’t be rejecting herds of potential contributors unless you were absolutely sure that your ICO is great, would you? The percentage of those who want to comply with KYC and AML standards is miniscule.

But really are there any standards?

These procedure comes from the banking industry, and the objective of KYC guidelines is to prevent banks from being used by criminals or terrorists. In the case of ICOs there is really no way to check whether a person is involved in illegal activity. Most of the KYC procedures are designed to make sure potential contributors are not US or Chinese citizens. I wonder, if a real financial criminals passed the residence check, would most ICOs even check them against the criminal databases? What about a terrorist—will anybody on ICO KYC compliance even bother to check for that?

Say I am Tomek from Poland, I want to participate in an ICO. I submit the required documentation and can even have a video chat with the company’s bot. In the end my wallet is whitelisted and I am authorized to contribute to the campaign. What stops me from transferring ownership of my wallet to somebody else, or what if the wallet was not mine in the first place? Google “Pass KYC for me” and you’ll see lots of offers from people who will upload their documentation for as little as $20.

The other sad and overlooked aspect of the so-called KYC procedure is the security issues that come up after tons of people’s data is uploaded to some websites and none of them ever really know what happens to their personal info. The ICO candidates are not in the business of handling and storing sensitive data and are not oftentimes aware of the risk they are putting their clients under.

So what is the solution and how to run KYC?

We recommend several things to launch KYC campaign.

  1. Be honest with your clients. Be willing to explain why you need them to pass KYC, what it will entail, and how you are going to secure their data afterwards.
  2. Be realistic about the impact of an ICO format KYC on your campaign. Will it protect you against the SEC?  It’s not clear. The SEC has not stated that ICOs that asked their clients to upload passport copies and utility bills are immune from regulations. It is more about offering a utility token over an equity one, remember?
  3. If you decide to have an ICO format KYC, choose a reliable service provider that won’t endanger your clients. If you are not in the business of secure storage don’t try to architect a quick solution on your own. Contributors are entrusting you with their personal information with the intention to give you their money without guarantees, just faith in your project. Be respectful.

What do we at BigBreak101 offer in the field of Knowing Your Customer?

We put together a platform that allows ICO campaign managers to customize the requirements of the screening (what type of info to upload, format of images and documentation, IP restrictions, etc.), but on top of that, we provide a risk assessment analysis based on geo data, and we run potential candidates against the global database of officially sanctioned and embargoed individuals to exclude terrorists and fraud. We also detect and ban low quality IP connections that indicate fraudulent activity such as proxies, and we do international address verification. We are currently working to receive access to the Interpol database of stolen documents.

On top of that our platform is secure and we don’t store any information of your clients after their application has been whitelisted or declined.

While we in no way think this is enough to guarantee a 100% accurate screening—we provide you with the tools that allow you to make an informed decision about your contributor candidate’s compliance.

We will be happy to answer any questions related or unrelated to the ICO format KYC or read our policy for more info


BigBreak101 team