cryptocurrency insurance - do you need it?

At least four major cryptocurrency exchanges were hacked in 2018:

Coincheck – $500 million stolen.

BitGrail – $195 million stolen.

Coinrail – $40 million stolen.

Bithumb – $30 million stolen.

Did any of them have insurance? Not really.

The $500 million Coincheck hack was one of the biggest in history, but the company ended up reimbursing clients with its own funds.

Bithumb was insured, but not enough to cover the loss.

In other words, cryptocurrency insurance is patchy.

Assume Your Cryptocurrency Is Not Insured

If you are currently holding bitcoin online in a custodian service or exchange, your digital assets are more than likely not insured. 

We automatically assume our cryptocurrencies are covered, but the harsh reality is they are not in most cases.

coinbase logo

 

Even Coinbase, the largest crypto exchange in the US, only insures 2% of customers’ crypto funds – those held online, the most vulnerable to hacking. The remaining 98% is stored offline in significantly safer cold storage, but uninsured.

Read more: 8 Cryptocurrency Best Practices (Keep Your Crypto Safe!)

That’s Why Gemini’s New Insurance Is Groundbreaking

The Winklevoss twins recently announced that cryptocurrencies on their Gemini exchange and custody services are fully insured.

Gemini logo bitcoin custody insurance

It’s a huge step for the cryptocurrency industry as it moves towards mainstream integration.

But what other bitcoin insurance options are out there? Who are the biggest players, and do you need a personal cryptocurrency insurance policy?

Do You Need Personal Cryptocurrency Insurance?

The harsh truth here is that buying bitcoin insurance for yourself is going to be wildly expensive and difficult to secure.

Insurance giant Allianz reportedly offers individual insurance to cryptocurrency investors. But there is no mention of such a service on its website. You’ll have to contact an Allianz broker directly to broker a crypto policy.

And that could be very expensive. One expert claims it would cost $200,000 a year in premiums to insure $10 million in crypto assets. (Roughly twice the cost you’d pay to insure other financial products). 

And that’s the rate for crypto companies, not individuals.

Unless you’re a crypto millionaire, you’re better off searching for crypto custody services that are already insured, like Gemini. 

Or better yet, keep your crypto off exchanges and custody services altogether. Use your own cold storage and secure backups.

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But let’s zoom out a little. Why are so many crypto companies not insured?

Too Much Risk, Too Little Revenue

Because of the fluctuating nature of crypto markets, big insurance companies have sat on the fence in regards to entering the cryptocurrency insurance affray.

There are two key issues here: risk and revenue.

Until recently, the crypto industry mainly consisted of volatile exchanges and startup companies. Most are high-risk and didn’t provide large enough revenues to encourage the major insurance players to get involved.

Put yourself in the mindset of a big insurance company. Given the number of hacked exchanges and failing ICOs, does it make any sense to offer coverage? Of course not.

And if they did offer coverage, the premiums would be so high (to compensate for the risk) that startups wouldn’t be able to afford them.

Times and Needs Are Changing

More and more crypto companies are breaking out, bigger players are entering the arena, and revenues are increasing.

As the industry evolves, there is a large gap in the market for insurance and security.

Ironically, the instability of crypto markets is what has kept major insurance companies away from the industry. However, it’s also the defining factor why it is important that crypto startup companies and individual users need insurance in the first place.

So we are currently in a state of limbo in regards to cryptocurrency insurance. The good news is that chaos is a ladder. With so much interest now in crypto, some insurance companies are starting to take a gamble on the crypto industry.

Biggest Cryptocurrency Insurance Companies

Although cryptocurrency insurance plans are being offered by companies, most are keeping it low and under the radar. But here are a handful of highly-trusted companies now offering cryptocurrency insurance protection.

Gemini Cryptocurrency Insurance with Aon

Gemini recently announced they have partnered with the leading insurers, AON, to provide insurance protection for custodial digital assets.

AON cryptocurrency insurance Gemini

Aon is a professional and global insurance provider that offers a wide range of insurance protection packages. Their latest partnership with Gemini is changing the game with its crypto coverage that complements the existing FDIC deposit insurance laws.

This might well be the main reason why Aon claims it controls 50% of the cryptocurrency insurance marketplace.

Lloyds Bank/Kingdom Trust Cryptocurrency Insurance

One of the most interesting partnerships lately is between the large-scale banking institution Lloyds Bank and the qualified crypto custodian, Kingdom Trust. As a qualified custodian, Kingdom Trust already stores over 30 cryptocurrency token types. Its crypto storage service is now insured courtesy of underwriters in the Lloyds market.

Although Lloyds seems to be keeping a low-profile on the subject and are treading carefully, their underwriting of Kingdom Trust’s service is not to be taken lightly.

Lloyds also reportedly provides insurance coverage for the 2% of Coinbase’s funds held online.

Chubb Insurance

Chubb is now offering its own Cyber Enterprise Risk Management (Cyber ERM) insurance policy to businesses. It covers a wide variety of cybercrimes including some cryptocurrency issues.

Chubb claims it doesn’t insure exchanges or crypto wallets, but it has paid out claims related to bitcoin mining and ransoms. There is also no mention of individual insurance yet.

Other notable mentions

As explained, insurance companies are still testing the water with crypto assets. Other name players who are now quietly offering cryptocurrency protection are Allianz, XL Group and AIG, although others will no doubt flock to the market over the coming months

What Should You Do Next?

Unless you’re a crypto millionaire, there aren’t many options out there for individual crypto insurance policies yet. However, we are seeing more insurance players offering coverage to crypto companies and exchanges. The door is opening.

Gemini is hopefully the first of many custodians and exchanges to integrate full insurance, and we’ll see more as we move forward. 

As a crypto investor, your best course of action is to check with your current crypto exchange or custodian. What level of insurance do they have, if any?

If you’re still concerned about safety, move your funds to a custodian with better insurance. Or move it into your own private cold storage and keep backups.

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cryptokitties dapp

In late 2017, cartoon cats appeared all over the blockchain.

Pretty soon, people were breeding these digital cats, swapping them like Pokemon cards, and selling them for over $100,000 dollars.

Cryptokitties became a sensation. It’s the simplest example of a dapp (and easily the most high-profile one out there).

cryptokitty dapp breeding

Quick Dapp definition: Dapp is short for “decentralized application.” Think of a mobile app or website application, but hosted on a blockchain. In other words, it can’t be controlled by any one gatekeeper (such as Apple).

Dapps, like Cryptokitties, open up blockchain technology to a mainstream audience. If there’s ever a future where we’re using blockchain on a day-to-day basis, we’ll probably be using dapps.

In this article, we explore the difference between apps and dapps. We also look at ten of the most popular dapps out there. 

App vs. Dapp: What’s the Difference?

Traditional Apps – When we think about traditional apps, a single entity typically controls the database and is responsible for determining whether or not that app can exist. For instance, the Apple App Store and Google Play have total control of hosting and maintaining applications.

These companies also charge developers high fees for hosting, and they earn large profits from sales. For example, Apple gets 30% of all revenue from app and in-app purchases.

Dapps – Perhaps the most fundamental difference is the way in which data is stored. While traditional apps use a centralized database, dapps run on blockchains, which are decentralized networks (i.e. no single entity owns or controls it).

dapp infographic
Credit: @angelomilan

From a user standpoint, dapp stores generally offer a much lower fee structure. They also offer more freedom in the sense that a single entity can’t serve as a gatekeeper. Truly decentralized blockchains don’t allow one party to censor users or dapps.

Thus, developers have the ability to more easily release dapps without having to worry about third-party interference or rely upon the approval of the blockchain creators. Some examples of popular dapp stores include Mobius, app.co, and iExec.

Most Popular Dapps in 2018

The following are some of the most popular dapps as of October 11, 2018. Stats were found on DappRadar. Rankings span across four categories (gaming, exchanges, gambling, and high-risk). Also, it’s important to note that rankings could change at any time in the future, especially as new dapps enter the market.

This is not a recommendation list! You might even want to avoid using some of the dapps mentioned here, especially those in the gambling and high-risk category.

Gaming Dapps

1. CryptoKitties

When it comes to decentralized application games, CryptoKitties is the clear winner of this category ever since its launch in 2017. It’s a game that allows users to collect unique cartoon cats.

cryptokitties dapp

While there have been many popular collectible series in the past, CryptoKitties adds several unique elements thanks to blockchain technology. For instance, each CryptoKitty is represented in the form of a non-fungible ERC-721 token, which allows for each entity to have specific “cattributes”. This means each cat is truly one-of-a-kind. As a result, this has lead to the growing popularity of CryptoKitty auctions.

How popular is this dapp? In December 2017, CryptoKitties accounted for massive congestion on the blockchain. At one point, it cornered 25% of all Ethereum traffic, causing longer transaction times and higher fees.

This dapp is also becoming increasingly mainstream. For example, in March 2018, the company partnered with NBA star Stephen Curry to launch the first celebrity-branded CryptoKitty collectible series.

2. Gods Unchained

The level of support within the blockchain industry (not to mention the amount of venture capital) for this dapp is impressive. Gods Unchained features Coinbase, Nirvana Capital, Continue Capital, and several others in its partners and investors list.

gods-unchained dapp

According to the project website, this is the first ever blockchain eSport. Gods Unchained is a multiplayer game where users battle each other as well as trade, sell, and store gaming cards. Smart contracts guarantee the scarcity of everything in the game from creatures to spells to weapons.

According to the future roadmap, there will be a world championship for this game early in 2019. As of October 2018, around $350,000 has been raised to go towards the payouts for this event. The fundraising goal for the tournament is set at $1.6 million. In the future, users can also expect a release of Gods Unchained VR.

Crypto Exchanges

3. IDEX

According to statistics, IDEX is the most popular Ethereum-based crypto exchange on the market today. While other exchanges like Coinbase/GDAX, Kraken, and Binance are centralized, IDEX is a decentralized exchange, commonly referred to as a DEX.

idex dapp

This means that users have full control over their own funds and own their own private keys. IDEX ranks high in terms of security and customer support. It also features lower fees than centralized exchanges. For example, market makers pay 0.1% fees, and market takers only pay 0.2%. However, fees can be higher at network traffic peak times.

DEX appears to have a massive lead over other exchanged like ForkDelta and Bancor when looking at seven-day trade volume.

4. ForkDelta

ForkDelta only lists ERC-20 tokens (tokens used exclusively on the Ethereum network). Originally, this exchange was called EtherDelta. However, it failed to live up to user expectations and was sold in mid-2017.

Later on, it was rebranded as ForkDelta by a group of traders that launched the exchange. ForkDelta uses smart contracts to complete trades.

Similar to other decentralized exchanges, it offers relatively low fees (0.3% for order executions). While trades are not instantaneously carried out as seen in some centralized exchanges, ForkDelta does offer innovative integrations. For example, it’s possible to connect a Ledger Nano S wallet to the platform.

Compared to other decentralized exchanges on the market, it ranks high in terms of trade volume and liquidity.

Gambling Dapps

The following gambling dapps are not a recommendation and anyone using them does so at their own risk.

5. Fomo3D

Gambling-focused projects are quickly becoming one of the most well-established blockchain use cases. Fomo3D, the top gambling dapp in this space, ironically pokes fun at one of the main issues with blockchain: greedy ICO project teams. According to the dapp website, “it’s your exit scam”.

fomo3d dapp

There are two games: Long Con and Quick Scam. They are built to simulate the standard hype, release, pump, and dump cycles of the countless ICO exit scams across the cryptocurrency space.

Much like a real Ponzi scheme, thousands of gamblers lost Ethereum funds (ETH) playing the game. However, in August 2018, one user actually won $3 million worth of ETH in the first-round jackpot.

At first, there wasn’t much info available on how users can win or lose the game. However, we have since seen an emergence of detailed articles trying to discern the strategies of the first-round winner.

Even with a high potential for losing funds and high blockchain congestion, multiple rounds of large jackpots make this dapp one of the most interesting, popular, and controversial gambling options on the market today.

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6. Etheroll

Etheroll is a provably-fair casino game. Unlike traditional online or casino gambling, decentralized blockchain gambling is able to demonstrate the real chances of winning. This is good news for gamblers who might be concerned about falling victim to large house edges. No deposits or signups are required to play this virtual dice rolling game.

etheroll dapp

Users can not only choose how much ETH they want to bet but also pick their probability of winning. A lower probability of winning presents a higher payout potential. A higher probability of winning presents a lower payout potential. This game is quite simple to get started wagering bets.

7. Zethr

Compared to Etheroll and Fomo3D, Zethr provides a larger selection of casino games. Users can purchase and use Zethr tokens to participate in a variety of gambling options on the platform. These include slots, dice, big wheel, and cards. Users can determine their own dividend rates.

zethyr casino dapp

Just like Etheroll, Zethr uses a provably fair algorithm for all games on its platform. This project also has a few different sites for game playing guides and platform usage stats. So for those users who might be unfamiliar with how Zethr games work, this information can help to understand more about this popular blockchain-based gambling site.

8. Augur

Technically, Augur is not a gambling dapp. On DappRadar, it is listed in the “other” category. So what is Augur exactly? This dapp serves as a prediction market. In essence, users can bet on the outcomes of future events using ETH or REP (Augur’s native cryptocurrency).

augur dapp

For example, users can bet with each other on which candidate will win an election or even catastrophic events. Unlike gambling dapps where outcomes are part of computer code, Augur makes it possible for users to create their own markets. Augur also utilizes a permissionless protocol and offers automated payouts once an outcome is declared.

Eventually, Augur aims to become more than just a betting system. It is pitching itself as a business and political forecasting tool.

High-Risk Dapps (Proceed With Caution)

9. 333 ETH

333 ETH is listed under the high-risk category on DappRadar. Why is this the case?

The reality is that this dapp does sound like a scam. Even despite this, it has become one of the top decentralized applications on the market. According to the project website, one only has to have contributed 0.001 ETH per day and will earn 3.33% daily interest (paid in ETH).

As you might have heard, there are scams (especially on Twitter) where people impersonate famous crypto influencers or project teams. They ask other users to send smaller amounts of crypto in order to get a larger sum in return.

333 ETH appears to be a similar concept. It relies upon more and more people contributing to the project. This is why some sites like Mashable called 333 ETH an outright Ponzi scheme.

This is not a recommendation and anyone using 333 ETH does so at their own risk.

10. Crypto Miner Token

The concept behind Crypto Miner Token (CMT) is similar to that of 333 ETH. According to the project website, CMT is used to help miners earn larger profits. In summary, miners that earn 1 ETH, for example, typically let this amount sit idle in their wallets.

By converting it to CMT, miners are (at least according to the website) able to earn more value. The website also mentions 10% transformation and 4% withdraw fees for CMT participants. These are high amounts by any standard and part of what makes this dapp appear fishy.

This is not a recommendation and anyone using Crypto Miner Token does so at their own risk.

Which Blockchain Will Be the Go-to Platform for Dapp Developers?

The ten dapps mentioned above all utilize the Ethereum blockchain. This is likely because Ethereum is the most well-established dapp platform and largest by trade volume on the market today. This momentum means developers continue to utilize this platform.

ethereum vs eos infographic
Credit: Bitgenste.in

However, Ethereum faces competition for the most dominant platform for dapps. EOS, NEO, and others are all building similar dapp ecosystems for developers and users alike.

Which will become the most popular? A number of factors like throughput, scalability, and security will determine which platforms are technically prepared for mainstream user adoption in the future.

There are also dapps for a variety of blockchain use cases beyond just those mentioned above. It will be interesting to see how this market changes in the coming years, especially with emerging improvements in blockchain technology.

In conclusion, dapps make it possible for blockchain use cases to move from mere ideas to real-world solutions. We are only now beginning to see the rise of decentralized applications and their potential to positively impact specific industries and drive web 3.0 and blockchain forward.

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At a Glance: 10 Popular Dapps in 2018

DappDescription
CryptokittiesA game for collecting unique cartoon cats (like Pokemon cards on a blockchain).
Gods UnchainedA multiplayer game touted as "blockchain's first esport."
IDEXA decentralized cryptocurrency exchange.
ForkDeltaAnother decentralized exchange, specifically for Ethereum ERC20 tokens
Fomo 3DA gambling app built on Ethereum.
EtherollA casino app with transparently fair odds.
ZethrAnother casino app with a wider range of games.
AugurAn app for "betting" on the outcome of just about anything - from presidential elections to the weather.
333 ETHA controversial "high-risk" app based on a ponzi-scheme.
Crypto Miner TokenAnother high-risk app. Claims to increase miners' idle profits.

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Gatecoin's interface

Founded in 2013, Gatecoin is a Hong Kong based cryptocurrency exchange that finds itself at #25 on BlockExplorer’s top 25 exchanges of 2017 list. Gatecoin offers a good number of trading pairs and an API for programmatic trading. Of the 90 trading pairs Gatecoin offers, there are both crypto/fiat and crypto/crypto offered, with the crypto/fiat pair’s fiat side being one of USD, EUR, or HKD.

Gatecoin has a respectable number of trading pairs and offers an API for programmatic trading. Which makes it a good choice for any traders located in Hong Kong, especially those looking to trade programmatically.

Gatecoin

gatecoin cryptoURL: gatecoin.com
Launched: 2013
Trading pairs: 60
Deposit Fees: Yes
Withdrawal Fees: Yes
Trading fees: Yes
Verification: Yes (Three levels)
Margin Trading: No

Fees and Limits

Fee wise, Gatecoin charges fees based on the trader’s volume over the last 31 days. Unlike some other exchanges, the 31 day period is a rolling one, meaning that you do not have to wait an entire period if you have significantly changed the volume of your trades. Fee levels are broken into the standard maker/taker distribution, where the taker pays a higher percentage than the maker. On the low end, 50BTC/31d, makers pay a fee of 0.25% and takers pay a fee of 0.35%. And on the high end, 20,000+BTC/31d, makers pay 0.02% and takers pay 0.1%. A complete breakdown of the trading fees charged can be found on Gatecoin’s fee page.

For deposit and withdrawal, Gatecoin only seems to charge fees for fiat. The fees paid depends on the transfer method, for example, there is a 1EUR deposit and 5EUR withdrawal fee for SEPA based deposits and withdrawals. The full list of fees can be found on Gatecoin’s transfer costs page.

Limit wise, accounts are limited based on their verification level. For crypto, you can transfer an unlimited amount as soon as you have completed tier 1 verification. And for fiat, tier 1 accounts are limited to $50,000USD or equivalent, which is upped to $100,000USD or equivalent for tier 2. There is no indicated timeframe for these limits.

Registration

Gatecoin’s registration method is a multi-step process that requires a decent amount of personal information. Registration cannot be completed without providing said information.

The first step is an email and password and is input from the normal registration form. Once you have completed the initial registration, you will be required to go through a further five steps on login. Each step requires some personal information from you. With the first step requiring your first and last name, your date of birth, and your current nationality. Following step 1, step 2 requires contact details, specifically, your address and phone number. Step three is simple and requires you to confirm an email address for your account. While step four is essentially verification for level 1, requiring a scanned copy of a photo ID and some proof of residence. And lastly, step five is a questionnaire asking for information regarding your source of funds.

Verification

Gatecoin has three verification tiers, where the first is no verification, the second is “verified”, and the third is “Certified”

Tier 2 verification requires a photo ID no older than ten years, and a proof of residence no older than three months, and a filled out ‘source of funds questionnaire’. Tier 2 is completed as a part of the initial account registration process.

“Certified” verification requires the same documents from Tier 2 to be mailed in as certified hard copies. Once the certified copies of the documents have been received, a video conference based verification takes place. During the Skype call, you will need to show your ID to prove that you are who you say you are. Alternatively, Hong Kong residents can have their documents certified at Gatecoin’s office.

Interface

Gatecoin’s interface is a bright white with two-toned blues for highlights, there is no dark mode offered. The bright background makes the interface difficult to use at night or in dark settings. The trading interface itself is well balanced, with a decent amount of information provided. As for the layout of the trading interface, it is split into four sections. The upper left section holds an order submission form. And on its right is the currently selected trading pair’s order book. On the lower half, there is a trade history on the left and a chart on the right. Along the top of the page is the pair selection dropdown, as well as a small overview of the current ask, bid, volume, high, low, and last trade for the currently selected pair.

Security

Account security wise, Gatecoin offers 2FA by means of Google Authenticator. Gatecoin offers a very granular account security configuration tool that allows you to specify what account actions will be logged via email, require confirmation via email, and require confirmation via 2FA. Granular controls are a welcome sight and make securing your account very easy. Gatecoin also states that all user funds are stored in per-user accounts on their side.

hand-coin

The process of ‘Know Your Customer’ (KYC) is simple. Say you want to invest in an ICO, you may be particularly anxious that no organizations or individuals connected with or funding criminals and terrorists share the platform with you. KYC also refers to parties involved in other anti-government activities like money-laundering, smuggling, or coming from countries under sanctions. Even if you don’t care, the government does.

There have been stories where funds have been frozen or confiscated while the government inspected the company’s transactions. In 2014 for instance, more than 3,000 customers lost some, or all, of their investments in Mt. Gox, the largest Bitcoin exchange, after the US Department of Homeland Security (DHS) seized money from its U.S. subsidiary account.

I assure you, most token buyers would rather go through the quasi-onerous motions of KYC than have their crypto booty confiscated!

In a similar way, if you’re thinking of running a cryptocurrency exchange, a cryptocurrency ATM, or an ICO, you’d like people who participate in your token sales and incoming funds to be “clean”. Either way, FinCen, a bureau of the U.S. Department of the Treasury, requires ICOs to adopt KYC regulations. Finally, if you’re a money service business (MSB), you’d certainly want KYC to be your rule since banks, large corporations, and public bodies are all KYC-crazy.

As a client, this is what KYC means

Most credible bitcoin exchanges like Bitstamp, Coinbase, or Kraken will ask you to do the following:

  1. Confirm your phone number You’ll enter a code the company sends to your mobile phone.
  2. Provide personal IDYou’ll likely need to attach one or more of the following: a scan of your ID or driver’s license, a recent utility bill, and/ or a copy of your birth certificate or passport. The types of required ID documents depend on the bitcoin exchange and on the amount you want to trade, with larger amounts requiring stricter verification.  

Expect a growing number of ICOs, particularly those that are MSBs, to ask you for some of those documents, too.

Most major platforms verify your identification within one to three hours. Slower businesses may take up to a week.

As a business owner, here’s what KYC means

The process is simple:

  1. Establish customer identity – Collect basic identity documents or data like the following: IP address, name and address validation, citizenship, birth date, a photo of government issued ID (Driver’s License, passport, ID card), Social Security number or Tax Identification, bank statement, recent utility bill.
  2. Understand the nature of the customer’s activities (to satisfy yourself that the source of their funds is legitimate) – Check that they’re allowed to take part in a token sale (e.g., they are not on a sanctions list). IdentityMind Global, a service that offers risk management and anti-fraud services for e-commerce platforms, deals with this problem by comparing a selfie of the individual to the picture in the government issued ID.
  3. Monitor the customer’s activities – As of January 1, 2017, The New York Department of Financial Services (NYDFS) required an ongoing monitoring program that includes checking that the client’s financial transactions and accounts match their risk profile.

Some concerns are that individuals from sanctioned countries could hide their location and buy tokens from US companies. IdentityMind prevents this by looking at the IP address and determining, first, if the prospective clients uses a proxy (and if so, which kind), and, second, if it employs the Tor network or a VPN. If either is used, the application is denied. When it comes to money laundering, IdentityMind imposes EDD for contributors over a certain dollar amount.

EDD: Advanced KYC

There are three tiers of due diligence:

  • Simplified Due Diligence (“SDD”) – Situations where the risk for money laundering or terrorist funding is low, and you only need a partial KYC.
  • Basic Customer Due Diligence (“CDD”) – Information obtained for all customers to verify the identity of a customer and assess the risks associated with that customer. Here’s where you’ll need the complete KYC.
  • Enhanced Due Diligence (“EDD”) – Additional information collected for higher-risk customers to avoid possible risks.

Since this sounds like a lot of work and you have enough on your plate, some ICOs, or blockchain companies, dispatch identifications to third-party KYC providers, who, in turn, send documents to call centers around the world where clerks review information. Other blockchain companies, like data marketplace Datum, seek more confidentiality for their clients and review the data themselves.

Dealing with upset customers

Admittedly, KYC frazzles some people’s moods. Crypto enthusiasts, for instance, tend to disagree with the government’s “interference” ideologically, on the grounds that cryptocurrency should be anonymous, or at least, pseudo-anonymous. Others find the KYC requirements irksome and intrusive.

To modify such customers, you may want to make your requirements clear ahead of time, show how KYC protects investors, and that even if they disagree – “Sorry, guy, but we need this information to comply with FinCen’s Know your Customer requirements.

After all, know thy client saves you and your customers oodles of stress and money.