Although fundraising methods like ICOs and IDOs prove to be important tools for adapting new technologies to capital markets, the chaotic environment of these platforms provides a convenient way for illegal transactions such as fraud and money laundering. Billions of dollars in funds flowing through the system raise concerns about money laundering and other illegal activities. One of the underlying foundations of blockchain technology is the ability to remain anonymous. While the blockchain ledger is public, access is limited to the public key. The private key containing the data about the owner is not shared on the blockchain. Instead, the private key serves as a two-step verification method only to access and approve fund transfers between blocks. To access someone’s blockchain account, you need both public and private keys. Funds cannot be traced in many ways, as such, people can launder large amounts of money through the blockchain network and then convert it from one cryptocurrency to another. The potential of criminals to use cryptocurrencies with the intention of committing crimes cannot be underestimated in an age of global terrorism and geopolitical instability. In response to these concerns regarding anonymous users who transfer large amounts of money, Anti-Money Laundering / Know Your Customer (AML/KYC) regulations have been put in place. By adopting these rules and sticking strictly to them, you can limit the extensive scrutiny of your company’s by financial and security regulators. However, since anonymity is an advantage that most traders benefit from cryptocurrencies, this method will always affect the sustainability of the ICO community. Conversely, an ICO issued without the implementation of an AML rule embedded in the smart contract may face legal risks. Without investor confidence, token sales could probably suffer.

Know Your Customer (KYC) is a process in which a particular company uses a data verification system to verify the true identities of customers. The goal is to identify potentially illegal targets and customers who are committing crimes and prevent them from being involved in your ICO. ICOs must remain strictly adhered to AML/KYC regulations. Compliance with these laws should not only reduce the risk of penalties that may result from legal regulations, but should also be seen as an example of best practice.

1. Increasing Reputation in Bank relations

It will be much easier to work with banks and follow AML regulations by following KYC procedures before and during your ICOs. By following KYC procedures, you give your ICO a tacit stamp of legitimacy. If you make sure you follow the “know your customer” regulations, most regulators become much more open to token sales.

2. Reducing Compliance Risk

Transparency is always the best course of action until uncertain regulations become clearer. Regulators in many major markets, such as the United States, Canada and the United Kingdom, are moving to classify ICOs as securities. These trends make the need to be proactive and transparent even more important for operating in these markets while complying with AML/KYC regulations. It will also prevent you from being subjected to administrative and judicial penalties.

3. Ensuring Long-Term Reputation

If you want your business to succeed in the long term rather than just taking the money and continuing activities, you need to understand and fully comply with the current legal framework for your ICOs. One way to ensure legitimacy is to show how fully designed, executed and protected your ICOs and management contract are.

4. Opening up to Large Markets and Improving Public Perception

By complying with AML/KYC regulations, your ICOs can reach a wider audience and increase the number of countries that investors can join. AML/KYC compliance will enable you to reach coveted “accredited investors” in the United States, Canada and the United Kingdom.