4 Key Takeaways: Decentralized KYC for ICOs and Token Sales
On August 29, 2018, we hosted our first webinar together with TokenMarket to chat about identity verification, Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance for companies hosting their own ICOs. In this hour-long conversation with Jonathan Smith, Civic Co-Founder and CTO, and Mikko Ohtamaa, TokenMarket CTO, they touch on the quickly-evolving ICO landscape over the past several years. Here are our 4 main takeaways:
1. The explosive growth of Initial Coin Offerings (ICOs) over the past 1-2 years has led to tighter KYC and AML regulations.
As a form of startup funding, the ICO is still in its infancy, having only taken off in 2017. Since then, hundreds of companies have used it to raise billions of dollars. For perspective, the $5.6B raised in 2017 is 20 times greater than the $240M raised in 2016. 2018 is also booming for now with 454 companies having already received more than $13.2B (source). The amount is all the more impressive considering the current bear market.
However, it’s not only the numbers that have changed. The way ICOs themselves are conducted has evolved significantly, and a typical coin offering of a year ago looks very different from one taking place now. Regulators are mandating stricter KYC requirements as a deterrent against bad actors. This means companies must perform more stringent KYC checks as a part of the ICO process.
2. The current state of identification is centralized and presents a liability for companies that need to keep user data safe.
One of the most exploited vulnerabilities for companies is personal information storage. Storing data on centralized servers puts the onus on a company to keep its users’ information safe– a high-risk proposition without any guarantees against data breaches. Blockchain, on the other hand, enables a company to check the validity of the information without having to safeguard it themselves.
3. Traditional identity verification systems present a sub-optimal experience for the user too.
From the perspective of a user who needs identity verification, the process is laborious and repetitive. Users fill out the same documents repeatedly, a time-consuming and potentially frustrating process. With a blockchain-based solution like Civic, the user goes through the verification process once and leaves with a reusable identity that can be trusted across any platform.
4. KYC paradigms are evolving from knowledge-based proofs to possession-based proofs.
The future of authentication is here. Blockchain enables us to evolve from knowledge-based authentication (i.e. usernames and passwords) to possession-based authentication (i.e. phone and biometrics). As Civic’s Jonathan Smith, summarizes:
“With blockchain, we allow the user to go through the full verification process on the device and share the information they need to get verified, just like you would traditionally by sending the data for verification. Once the data is verified, the entity verifying the user is able to create a transaction that is tightly coupled to both the user and the entity creating that transaction but without storing that information publicly.”
After verification, a user can now use his or her phone and biometrics to authorize or revoke validated information to any entity requesting it.
The immutability of data on the blockchain both benefits companies looking to conduct ICOs as well as potential investors. The system engenders trust between the two sides, which equals a healthier ICO ecosystem in the long run. Beyond our key takeaways, Jonathan and Mikko dive further into the topics of ICOs, KYC, and AML checks in the webinar. We suggest giving it a listen. The entirety of the discussion is on YouTube: