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Melissa: ID Verification is Key for Cryptocurrency to Become Mainstream

With more than 100 million users around the world, cryptocurrencies are gaining significant interest amongst adventurous investors. Bitcoin, Ethereum and other virtual currencies allow consumers to buy a growing array of goods and services or trade the currency for profit. Yet, even with the increasing popularity, cryptocurrencies face hurdles in reaching the next maturity stage – mainstream acceptance as a form of payment.

Here Barley Laing, the UK Managing Director at Melissa shares his thoughts on why ID verification is key for crypto to become mainstream. 

The purchase of such currencies is, in many cases, not subject to the same rigorous ID verification requirements faced by mainstream financial institutions when onboarding customers. This is due to a number of reasons. Regulations on cryptocurrencies are often lagging in the markets where they operate. The global nature of virtual currencies makes them hard to regulate. And, since they are a decentralised form of finance, they are considered an anonymous form of currency.

Crypto and the fraudsters

These factors make cryptocurrency an attractive proposition for criminals intent on laundering money. In fact, 2019 saw $2.8 billion laundered through cryptocurrency exchanges, up $1 billion from 2018. With research highlighting that 56 per cent of all cryptocurrency exchanges don’t have know your customer (KYC) processes in place, this is not surprising.

As a result, many governments and intergovernmental organisations, like the EU, are actively looking to regulate the use of cryptocurrency, especially as many vendors remain unwilling to accept it as payment. This doesn’t take into consideration the volatility in the price of the likes of Bitcoin, which is another important factor impacting these currencies’ ability to go mainstream.

With the Fifth Anti-Money Laundering Directive (5AMLD), the EU has made a start in bringing regulation to the cryptocurrency industry. As “obliged entities,” cryptocurrencies face the same regulations applied to financial institutions, including combating the financing of terrorism (CFT) and AML. This requires the performance of customer due diligence and submission of suspicious activity reports. Furthermore, 5AMLD mandates EU Financial Intelligence Units (FIU) to obtain the addresses and identities of owners of virtual currency – pushing back against the anonymity associated with the use of cryptocurrency. Additionally, the Financial Conduct Authority (FCA) in the UK requires all firms offering cryptocurrency-related services to register and demonstrate compliance with AML rules – though, to date, very few have done so. This is despite some recent publicity around the FCA banning one of the largest cryptocurrency exchanges, Binance, from operating in the UK.

Rule following may not be fun, but it can pay off

Are these moves by the EU and FCA enough to drive those in the cryptocurrency world to deliver effective AML and KYC checks? The latest action by financial institution TSB suggests not. TSB is set to be the first big bank to prevent its five million customers from using their accounts to buy cryptocurrencies on virtual currency exchanges. The organisation has found that one in eight payments made to crypto-trading platforms from TSB customers were made to fraudsters, whereas only one in 5,500 non-crypto transactions were fraudulent.

To avoid being blacklisted by regulatory bodies and financial institutions, cryptocurrencies – and the exchanges where they are traded – need customer ID knowledge to ensure criminals aren’t making purchases. Such an approach may go against the ethos on which cryptocurrency was founded but, to go mainstream, the sector needs to take additional steps to confirm ID verification and leave behind its anonymity heritage. To achieve this, they must:

Embrace electronic identity verification (eIDV)

When someone goes through the cryptocurrency purchase process an eIDV tool can run real-time cross-checks against the contact data provided – such as name, address, phone number, email address, and date of birth – in the background. However, to do this effectively, the eIDV service must have access to billions of global records in real time, including up-to-date watch lists, such as politically exposed persons (PEP) data, as part of this dataset.

These tools will help prevent fraud in real-time, at the point of online customer access, by ensuring cryptocurrency exchanges and others offering virtual currency are dealing with the actual identified individual and meeting KYC and AML objectives. Since the cross-checks are conducted instantaneously, there’s no negative impact on the customer experience.

Additionally, eIDV capabilities are delivered through apps, SaaS, and web APIs, integrating seamlessly into existing online platforms. If required, they can also be easily scaled up, delivering as little as 100 checks, through to many millions per year.

Use document verification and biometrics to deliver secure, real-time online customer onboarding

As part of its eIDV toolkit, the cryptocurrency industry should employ machine-readable zone (MRZ) and optical character recognition (OCR) technologies to collect ID and obtain crucial information when onboarding customers online. These assure the ID is genuine and validated in real-time. The photo ID embedded in these scanned documents supports biometric ID verification, such as facial recognition, which can also accelerate customer engagement in a secure manner. Liveness checks, such as eye movement, must be delivered by biometric technology for proof of life confirmation. This is because fraudsters are increasingly using creative methods like 2D images and video playback in an attempt to trick facial recognition technology and ‘prove’ they are the person they are impersonating. In fact, this process enables cryptocurrency industry professionals to receive a due diligence report related to AML and KYC that can be used to demonstrate regulatory compliance.

Anonymity and lack of regulation have certainly made crypto an enticing investment that has really gained traction. But to grow into a truly mainstream form of currency there must be compromise that requires effective ID verification processes. This is the only way for crypto to break through and have a long term future. Using tools like eIDV, document verification and biometrics will help achieve this objective, and prevent funds landing into the accounts of cybercriminals and terrorists.


  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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