Verification and security is crypto’s secret weapon

Early traders are beginning to realise that even though crypto still holds massive opportunity, it needs to grow up.

The cryptocurrency market is experiencing a maturing period — when early traders are beginning to realise that even though crypto still holds massive opportunity, it needs to grow up.

Early adopters were enticed by the end of middle men, the chance for individuals to transact without needing to involve banks or governments. Of course, that resulted in a boon for black market transactions and avoiding government detection. The Silk Road controversy alone tarnished crypto’s reputation for the mainstream is still to fully recover.

Yet as cryptocurrencies edge ever closer to mainstream adoption, it’s clear the market has to recognise something: that adoption simply won’t happen unless crypto exchanges invest in the type of security and privacy controls modern consumers expect.

That also means verification is going to get a little messy if we don’t pay careful attention.

We live in a post “big hack” world. Password leaks are a factor of daily life for most consumers.

Apple’s marketing campaigns feature privacy front and centre. Facebook talks constantly about encryption. These terms would not be at the tips of our tongues if mainstream consumers didn’t know about them and demand this type of protection.

Given that demand, crypto’s original “wild west” premise seems antiquated. Playing in the grey space is fine for early adopters who want to try their hand at getting rich quick, but for retirees who rely on the security of a bank account or a SMSF? For parents who can’t afford any uncertainty about how their money works on a day-to-day basis?

If crypto doesn’t offer the same security protocols as their online banking systems, they simply won’t use it. In the real world, that means crypto exchanges will increasingly rely on world-class verification and safety protocols to make crypto a safe and trusted space for everyday Aussies.

Identity verification will become a staple of any crypto exchange — and for us at Cointree it’s central to our day-to-day operation. Security measures like strict ID checks, AML and KYC are not just “nice-to-have”, they’re non-negotiable to protect Australians from fraud, in the same manner a bank would.

It isn’t a coincidence that Facebook — perhaps the world’s pseudo-protocol for confirming identity — is launching a cryptocurrency. It certainly won’t tolerate anonymity when it comes to money, and it says so: “We’ll be using all the same verification and anti-fraud processes that banks and credit cards use.”

Anti-money laundering systems and processes are simply par for the course.

A survey by the Library of Congress found many countries, including Australia, have expanded their money laundering laws to include cryptocurrencies.

The G20’s Financial Action Task Force is putting pressure on exchanges to share customers’ information. Earlier this year, it ruled exchanges should “… obtain and hold required and accurate originator (sender) information”.

The bottom line here is that user identity verification among crypto exchanges isn’t an annoyance that can be avoided by certain traders, it’s an inevitability.

That means for those hoping to avoid detection or identification, opening an exchange account will be more difficult than ever.

It’s likely they will be rejected, just like they would be rejected for a bank account.

For traders who hoped crypto would provide them the means to anonymously trade money free from the watchful eye of governments around the world, the possibility of being barred from opening exchange accounts might be a profound disappointment.

But for the majority, this is a blessing. It means the crypto space is finally being secure enough, mature enough, and practically safe enough to transact day-to-day.

Which means the future is brighter for everyone.

Jessica Renden is head of operations at digital currency exchange platform Cointree