Implementing effective KYC and AML tools can be one of the quickest ways to fulfill crypto mainstream adoption, but what exactly are they?
With present-day regulatory scrutiny ensuring crypto exchanges are KYC compliant, bad actors find it difficult to off-ramp crypto assets into fiat or spend them in open markets. Speaking about the various methods most commonly used to transfer illicit funds, Mushtaha stated:
KYC and AML tools can now correlate IP addresses with wallet addresses, and clustering algorithms do an amazing job at identifying associated addresses. Such measures would be difficult, even for state-level actors, to launder through exchanges outside their borders. Mushtaha added, “The Office of Foreign Assets Control has lists of identified addresses belonging to sanctioned persons and entities. The assets in those addresses are too hot for anyone to handle.
-based KYC solution using zero-knowledge Proofs. “The cleverness comes from their recognition that NFTs used for KYC don’t need to solve the double spend problem, so can be disengaged from the blockchain entirely. This then allows for private biometric data to be stored on the NFT and a zk-Proof to be sent to each platform where the individual wants to open an account.”
AI innovations focusing on algorithmically generated transaction-based user behavior pattern recognition will be a key trend. “The blockchain holds a wealth of behavior-related data, that can be used to analyse money laundering patterns, and then extrapolate risk profiles for wallet addresses that behave in these ways,” explained Mushtaha.
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