Post Menu and Details.
- What is blockchain technology?
- A blockchain vs. a database
- How secure is blockchain?
- Virtual assets and regulations
- Why do you need KYB for crypto?
- How KYB prevents fraud
- The final thoughts
Reading time: ~4 minutes
You might be familiar with the Know Your Customer (KYC) verification process, but have you ever heard of Know Your Business? While fraudsters are getting smarter, compliance specialists behind Anti-Money Laundering (AML) laws are looking for new ways to improve the regulations.
The digitization and the global pandemic accelerated growth, making it an issue for many industries. Blockchain players are not an exception. Continue to read this article to find out more about the KYB process and the essential ways to protect your business from fraud.
What is blockchain technology?
To put it in simple words, a blockchain is a system that records data. It continuously adds information in chronological order, making it hard to cheat the system. If you add the information to the blockchain, it’s hard to change it due to Hash. It’s a digital print that’s assigned to the block. Blockchain works as a transaction ledger. If some of the transactions in the block are edited, the Hash changes. Blockchain technology allows to duplication and distribution of transactions across the entire network that’s on the blockchain.
Blockchain is similar to a database in the way that it stores information digitally. Nowadays, you can say that almost everyone knows blockchain because of the cryptocurrency industry. The centralized data record system is essential for crypto because it secures the information and builds confidence without needing another trusted third party.
A blockchain vs. a database
The main difference between a blockchain and a database is how the information is stored. A blockchain gathers data in blocks or simply in groups. They are responsible for holding sets of data. Blocks have different capacities as well. If they are filled, they are later closed and associated with the previous group; this way forming a chain of information – known as the blockchain. Additional data is compiled, then added to a fresh block, which later joins a newly formed block, eventually forming a chain.
If we look closer into a database, it stores information in tables. In general, the term ‘blockchain’ is pretty self-explanatory since a blockchain actually structures the data into blocks, making the chunks of information stick together. If the blockchain is filled with data, the block is set to become part of the blockchain’s timeline. Each piece of data has its own timestamp of when it became part of the blockchain.
How secure is blockchain?
Blockchain technology provides security in many ways. Since it’s difficult to go through the mentioned timestamps and edit the blocks, it’s hard for hackers to access or alter the chain. Let’s imagine that a hacker wants to steal bitcoin on a blockchain. They would have to alter the whole network because it’s impossible to stick to their copy of the blockchain. That’s because their version wouldn’t stick with everyone else’s blockchain copy. The hacker’s version would stand out, causing the chain to be determined as illegitimate.
The bad actor could pull off a successful hack of a blockchain only if they actually controlled more than half of the blockchain’s copies. In this scenario, the copies would become the majority, making the new copy the main agreed-upon blockchain. It’s more of a utopia than an actual strategy because such an attack is only possible with huge amounts of money, not to mention the hacker would need to redo all of the blocks with the hash codes and different timestamps.
Virtual assets and regulations
Over the last few years, the crypto world has stormed into the financial system, becoming a mainstream thing globally. Despite the success of bitcoin and the multiple ways that businesses have created to utilize such assets, cybercriminals have found new and improved ways to launder money through crypto service providers. Such changes forced governments to maintain stricter AML regulations.
New laws reached the crypto sector and utilized two main processes: KYC and KYB. KYC refers to customer identity verification. Businesses need to verify the identity of the person to make sure that their intentions aren’t to launder money and that their identity is legitimate. In the meantime, KYB is a similar procedure, but it’s generated towards businesses as a whole. To put it simply, KYB or Business verification scans the structure of any organization to make sure that it’s not involved in any kind of fraud.
Why do you need KYB for crypto?
Aside from regulations and compliance, businesses need KYB processes in order to secure their assets, and their data, and keep their reputation intact. Knowing your business partners, and customers along with monitoring their activity helps companies to stay away from fraud. On top of that, KYB solutions help entities not to become channels for money laundering or other criminal activities, which is especially relevant in today’s crypto world.
Not sticking to KYB regulations can expose businesses to legal consequences and huge fines. According to a recent report by Fenergo, non-banking financial institutions were exposed by regulators. For instance, one crypto platform, BitMEX, together with another cryptocurrency player, Bitpay, was forced to pay more than 100 million in fines due to non-compliance.
How KYB prevents fraud
With many risks, such as cyberattacks and compliance challenges, crypto and blockchain businesses can’t afford to lose funds over bad, outdated KYB processes. Organizations that work with virtual assets need to seek automated solutions to prevent being involved in criminal activity or partnering with the wrong company.
Lengthy and manual KYB procedures aren’t effective, as humans can’t review multiple databases at once and monitor them in real-time. For this reason, automated AI-powered Business verification services are the best solution for fraud prevention in the cryptocurrency sector. The main idea behind any KYB process is to determine if the potential partner is an authentic business, for example, it might be a shell company that’s laundering funds.
Certain Business verification tools help to determine the real address and even provide internal and external office pictures. As part of the KYB process, some Business verification service providers conduct Website audits where they list automatic reviews regarding the company’s social media profiles. The automatic KYB services also review every little detail regarding the company’s shareholders and beneficiaries, exposing every red flag that helps prevent unwanted business relationships along with the potential fraud risks.
The final thoughts
Thanks to innovative technology, blockchain and crypto are safe. Following KYB procedures is a must for every business that wants to protect itself from cyberattacks and getting trapped in fraudulent schemes. Automated Business verification solutions help achieve this goal more efficiently, not to mention they also ensure full compliance with the ever-changing laws.
Thank you for reading!