What is Crypto Compliance? A Beginner’s Guide

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Cryptocurrency is a virtual currency that has no physical form and is not backed up by any government. It is just a piece of Computer Code that does not depend on banks to authenticate its transactions. This dispersed structure allows cryptocurrencies to exist outside the control of the government and other authorities. This payment is formed using encrypted algorithms.

The use of encrypted algorithms means that cryptocurrencies are used as both currency and virtual payment systems. Instead of carrying physical money around and exchanging it with people, cryptocurrency makes it possible to use digital currency to make transactions.

To use cryptocurrencies, you need to have your crypto wallet. This currency is stored in the wallet. A Crypto wallet keeps your private encrypted keys and the passcodes that give access to your currencies. By using a wallet, you can send and receive payment securely.

Cryptocurrency continues to dominate and is gaining popularity in the world of finance. It was once only known by keen technical wizards. But now it has gained a lot of attention from investors, entrepreneurs & costumers.

What is Crypto Compliance?

The continuous hike of cryptocurrencies has led to a new industry called Crypto Compliance. Crypto compliance ensures that all the information gathered from the customer is secure and safe. It makes sure that all transactions and investments are done legally and with the right financial institution.

It is a process of executing proper tools and internal processes set by the Anti-money Laundering regulation to successfully reduce finance terrorism and money laundering. With more regulations installed, crypto compliance has become more critical. For this reason, companies that are dealing with digital assets fully rely on AML and now demand better and more effective anti-money laundering ways. The gush in the usage of cryptocurrencies has come to the point that it needs an increase in compliance because this market is so unregulated.

Cryptocurrencies have become increasingly popular so there is also a high risk of money-laundering and terrorism financing. Hackers use vulnerabilities to steal personal information and sell it online. By implementing crypto compliance, chances are reduced of customers being targeted.

Current Stage of Crypto Adoption

The adoption of crypto has increased in the past few years. Right now, the global cryptocurrency market has reached up to USD 916.9 million, and the total transactions of nearly USD 15.9 trillion in 2022. According to a global survey, 87% of institutional investors believe that Cryptocurrency will see mainstream adoption in the upcoming decade. It will surpass traditional investment methods in the upcoming years.

Importance of Compliance

Cryptocurrencies have been growing so fast, and they have become mainstream. At the same time, this mainstream came up with many costs, dangers, and frauds. The volume of illegitimate transactions has also increased up to $14 billion. The Fraudster always looks up new opportunities to exploit and do financial terrorism.

Cryptocurrencies are now being used for more heinous and awful exploits, which include money laundering & terrorism financing. This continuous increase in frauds has prompted governments to develop new regulations around crypto compliance to protect investors from fraudsters and to help them track down their transactions and keep an eye on illicit activities.

Cryptocurrency compliance involves these important policies:


Anti-money laundering (AML) is a procedure of legal regulations that help to identify customers and track any unidentified transaction or illegal exploitation. This law applies to financial institutions, exchanges & brokers. These laws require them to identify customers and report suspicious transactions. If they are not willing to comply, they could face penalties.

It is a regulatory process that includes KYC, KYB & KYT. By judging people, wallets & transactions using AML, they can identify and report illegal activities to the authorities.

User Verification plays a major role in the AML process. Implementing further processes such as KYC / KYB helps to bring trust among the users of cryptocurrency. To understand the process of User Verification, it is important to know about other AML regulations. It is mainly a set of policies, technologies, and laws to prevent from money-laundering. It stops criminals from making illegal transactions and financing terrorism.


Compliance basically starts from identifying the customer’s identity. It is called Know Your Customer, in other words. KYC is a process of identifying the personal information of a customer, such as full name, address & photographs. It is then verified by the user’s government-issued documents such as driver’s license and CNIC.

This process is obtained to check the legitimacy of the user’s financial history.  Finance companies must verify customer identities to prevent any money laundering, fraud & financial terrorism. It is necessary for companies to keep proper verification of their customers to prevent any exploitation. The KYC process determines to stop illicit schemes of fraudsters.


KYT (know your transactions) is a process of collecting information on all the transactions made by a user to verify their legitimacy and make sure it is not connected to any financial crimes. It determines if the company’s activities are legal by analyzing its transaction data. It is then provided with insights to detect any suspicious behavior and analyze it further.

KYT is provided with all the digital data of users’ transactions like its date, time, browser, device, and a lot of detailed information about each and every transaction. It then looks up to each context of all transactions. It is a mandatory process of AML.


KYB is not so different from KYC. It has the same objective as KYC. The only difference between them is that KYC requires information about individuals while KYB targets information about a business. The Know Your Business (KYB) procedure is a process of initiatives to acquire thorough information about business partners and clients. It verifies its client’s business as a whole. This process is obtained to check the legality and to ensure that the business is who it claims to be. This is mandatory for crypto investors and is carried out under internal policies.

It is a way to keep your company and assets unharmed, and it can protect you from frauds, mainly in the world of crypto. These procedures are aimed to protect clients from possible risks of finance terrorism. It is basically applied before a company enters into legal relationships with clients. To comply with AML requirements, the proper KYB process is mandatory. KYB is often a lengthy and time-consuming process for both checking companies. But if both companies come prepared and cooperate with each other then it is a high chance that the process can be done more conveniently and speedily.

Regulations in the Crypto Industry

The four different ways stated above are important to implement in crypto compliance. Before the official business is processed by firms, AML procedures are done to confirm whether the businesses are appropriate. These checks are done to identify high-risk customers and prevent money laundering terrorism in accordance with AML regulations.

As cryptocurrencies are becoming mainstream, regulations continue to progress more and more. These regulations are made to protect investors from fraud and other financial risks. It has become a huge market, but on the other hand, cryptocurrency is still unregulated. In order to protect investors, the government needs to put regulations in place to secure transactions.

Some of the leading agencies in the US are preparing schemes to regulate cryptocurrencies using their own data and different strategies:

Security and Exchange Commission (SEC)

The U.S based Security and Exchange Commission (SEC) agency has a responsibility to regulate financial markets and protect investors. It is an independent federal government agency that manages to maintain fair securities markets. The SEC has a right to bring civil actions against lawbreakers because it has close contact with Judiciary departments. The five main functions of the SEC are:

  • Creating Fair Markets
  • Protection to Investors
  • Ensuring Corporate Finance
  • Enforcing the Law
  • Economic & Risk Analysis

Internal Revenue Service (IRS)

The U.S based Internal Revenue Service (IRS) agency is responsible for collecting taxes and enforcing taxation laws. Its main purpose is to collect individual taxes and employment taxes.

Financial Crime Enforcement Network (FinCEN)

The U.S based Financial Crime Enforcement Network (FinCEN) agency considers the virtual currency (cryptocurrency) to be its money service business object under its regulations. The cryptocurrency service providers must:

  • Have a license from FinCEN
  • Go through the AML process
  • Maintain a record of transactions and submit reports to agencies

Office of Foreign Assets Control (OFAC)

The U.S based Office of Foreign Assets Control (OFAC) agency wants that virtual currency (cryptocurrency) should be treated the same way as fiat currency (US Dollars). It highlights compliance responsibility to be identical. It demands that virtual currency addresses must be approved by the Specially Designated Nationals List (SDN list).

Blockchain Compliance & Regulation

Blockchain is very familiar for its imperative role in cryptocurrency systems, especially in Bitcoin. It maintains the decentralized record of each transaction in its blocks. Blockchain guarantees the accuracy and security of records of data and develops trust among investors without the interference of any third party.

Blockchain stores data in its blocks that are linked to cryptography. As the new data comes, it is entered into a fresh Block. When block is filled up with data, it is then chained with the previous block. It makes all the data chained in sequential order. There are different types of information that can be stored in Blockchain, but the most important use is storing the records of transactions.

Blockchain technologies can improve regulatory compliance because they can help compliance officers to keep track of the complex process required by the regulatory system. Every year, leading businesses spend a lot on crypto compliance, but still, it comes up with a lot of risks.

Sometimes, the question arises of how companies can manage in the environment of increasingly complex compliances. Blockchain helps them at this stage because it keeps a record of every procedure in a secure and inflexible way. This Blockchain technology can significantly reduce the cost, time, and energy that the companies make while managing regulations. It will also help the authorities to improve the quality, accuracy & confidence of this process.

It has been so difficult for authorities to develop security against finance terrorism. After working for so many years on how to determine the legality of transactions, they have now developed KYT to help businesses and companies to lessen risks on their platforms.

KYT is a transaction screening tool that is designed to ensure compliances with all applicable laws and regulations in each company for which it works. It lets u buy cryptocurrencies under the laws of compliance and regulation. It can also keep track of customers’ identities and the transactions made between the clients. Coinbase complies with all the applicable laws and regulations. Hence, it is the safest way to buy, sell, and store your cryptocurrencies.

Future of Crypto Compliance

When Bitcoin was released, the very first cryptocurrency, it was known by a very people. And even a very small number of people could predict that it will become a globally popular name. The trading market is now growing rapidly. So the crypto world is not bounded by a few professional technologists. It has now more approachable to the general public and is somehow becoming mainstream.

At the same time, crypto compliance also wants the attention of authorities. The crypto market is now coming up with more risks of money laundering and fraud. The threats of having illicit activities and illegal transactions are also being discussed around crypto compliances and regulators.

Therefore, it is important to build up the regulatory hold over cryptocurrencies to deal with growing exploitations in the crypto world. However, it is also mandatory to oversight the future of crypto compliance to introduce meaningful changes to help in cryptocurrency. The continuous increase in the exploitation of criminals has come up with an absolute need for more regulations and compliances in the crypto world. And it has definitely begun to change.

Companies Helping in Crypto Compliance

There are a lot of companies that are offering solutions similar to KYC/KYB/AML to crypto authorities to help companies. These companies are divided based on the solutions they implement: KYC, AML, or KYB. Besides, these companies are also divided based on the solutions they offer to companies. They have huge facilitation for trading transactions. Therefore they need AML/KYC regulations. The solutions which companies are providing are stated below:

Crypto exchanges are online platforms where u can buy and sell cryptocurrencies. They can also be used to change one crypto from another. There, users can deposit fiat currency and use those amounts to purchase cryptocurrencies.

Crypto wallets are the apps that allow you to keep and save your crypto assets. You can access them anytime and keep track of your cryptocurrencies.

Crypto custodians are the companies who securely save cryptocurrency assets of individuals or institutional investors. They usually charge a fee for their service. They have solutions for those clients who want to save and secure their assets.

These companies are providing compliance solutions for crypto companies in accordance with AML/KYC. They are working with different financial authorities to make the process of crypto trading easy and allow the safe adoption of crypto assets.

Besides crypto exchanges, wallets and custodians, AML & KYC compliance is also carried out by Decentralized Finance (DeFi). DeFi is another process with limited regulations. However, this may not continue for long because of the continuous increase in institutional investors adopting DeFi because it has limited regulations.

Key Partnerships

There have been a lot of companies working together in the crypto compliance market. Companies are collaborating to build up their presence in businesses. These partnerships provide benefits in the following sections:

  • Automating the process of compliance and regulations
  • Building up the safety measures in the finance market
  • Increasing the cryptocurrency contribution

Companies are using the ability of the AML/KYC processes to enhance their footsteps in the crypto world.

Challenges that Crypto Compliances Face

Compliance is really complex and time-consuming to manage. It is often made by the professional tools and process to get this work done. According to research, 35% of the regulator’s team spend at least 3 hours creating and modifying compliances.

The most common challenges that compliance companies face are stated below:

  • Shortfall of Classification
  • Disconnected Systems
  • Insufficient Metrix
  • Criminal Actions
  • Classification of Investors
  • Modernizations Operating New Demand


The growth of this industry has been so rapid that it’s now worth more than $800 billion worldwide. However, cryptocurrencies are not backed up by anything. This is the reason companies trading in the cryptocurrency have to be extra vigilant about compliance with AML & KYC laws to give proper security to customers.

Crypto Comeback Pro is a crypto trading tool for investing in the crypto market with an %88 average win rate on trades and is the #1 trading software for crypto traders from all around the globe in 2022. Try it For FREE Today. (Ad)

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