When investing in an ICO (Initial Coin Offering), investors want to make sure that the transaction is secure so their money will be handled appropriately. Conversely, ICO owners want to make sure that the people buying tokens are truly invested in the success of the ICO and that they are who they say they are. To accommodate these needs, KYC processes are used in ICOs.
What is KYC?
KYC is an abbreviation for “Know Your Consumer” and is used to ensure that the investor is the person expected. KYC processes are authentication processes that verify the identities of clients. Unlike many digital verification processes, KYC requires that personal data be used to verify identity. This is in place of passwords or codes, which can be hacked more easily. The purpose of KYC is to ensure that the person being dealt with is the person intended for the transaction or interaction.
The Importance of KYC in ICOs
KYC processes are becoming standard in ICOs hoping to raise capital. This process is important for investors because it lends credibility to the ICO as well as legitimacy to the transaction. It is important for investors because it helps to weed out those investors who would not care about the future success of the organization. Specifically, it prevents “investors” from using the ICO as a means to launder money rather than viewing the opportunity as a legitimate investment. This process, referred to as “pumping and dumping” can have a negative impact on the ICO, including the value of the token.
Despite the benefits of KYC in ICOs, some people express fear about the process because of the personal data used. However, the process itself is secure and usually takes no more than five minutes to complete. The benefits gained by implementing KYC processes for ICO investments outweigh any potential risks people might think exist.
Since KYC processes are being used more frequently in ICOs, investments can be viewed with greater legitimacy and ICOs can get the capital they need for their organizations. Through the verification process, both sides are protected from fraud, contributing to a happy and financially successful ending for everyone involved.