ICO Pass — The future of KYC [Updated: May 14, 2018]

Miika Warsell
10 min readFeb 22, 2018

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Introduction

ICO’s (Initial Coin Offering), sort of like IPO’s of the crypto currency world, have been rapidly increasing. Over 200 ICO’s went live in 2017 and the pace is quickening in 2018. However, in order to follow the AML (Anti-Money Laundering) laws and regulations (which can differ from country to country), it is vital for the startups to do thorough KYC (Know Your Customer) checks. Yet they are costly (Bitcoin Suisse charges over 200€ per check!) if done properly — and NOT doing them properly can lead to problems later.

In 2016 a small Latvian (yes, they are an EU member) startup Notakey went to Switzerland for the Kickstart Accelerator. They won the whole thing and got partners such as Swisscom, UBS & Credit Suisse. Notakey?

Notakey, Swisscom, UBS and Credit Suisse at the Kickstart Accelerator in Zurich

Notakey is a Latvian startup who earned their merits, in addition to winning the Kickstarter, by creating the Latvian government ID cards and e-signature. They are now about to turn their eyes, nimble fingers and code-evoking brains to solve the problem that is ICOs + KYCs. The product is called ICO Pass and a dedicated website for it can be found here. Let’s get started.

The magic of the number 7

What’s the catch here? Well, the folks behind ICO Pass claim that they can do KYC checks fast (7 minutes instead of 20), inexpensively (7€ instead of 230€) and the last, but not in the world least, they will return 7% of quarterly revenue back to the investors.

Sounds good? Let’s delve in. According to the folks behind Notakey,

ICO Pass is a suite of tools for gathering, verification and exchange of know-your-customer (KYC) information. The target audience are tokensale organizers on the Ethereum blockchain.

For each contributor, ICO Pass gathers:
— full name
— date of birth
— e-mail
— mobile phone number
— nationality and country of residence
— address of residency
— photo of ID document
— photo of person.

This information is then authenticated against many backing providers. The early version will use Onfido (an identity verification engine for enterprises), but later versions will use more providers for increased accuracy. Afterwards this info is passed on to be signed with an ICO Pass key, then encrypted against the public crowdsale address and finally published to IPFS (a peer-to-peer hypermedia protocol).

For tokensale organizers ICO Pass will provide a suite of tools to manage KYC information. For contributors ICO Pass will publish a mobile application, which facilitates the gathering of KYC information. There will be a small fee, done in ETH, for the contributors to prove their address ownership. This fee will be refunded (minus the network tx costs, which will befall, at least initially, to the contributor).

An overview of the ICO Pass KYC process

According to the ICO Pass website, there are 7 (remember the magic number?) reasons why ICO Pass is superior to what’s out there at the moment

  1. Automatic vs manual

Manual KYC checks are lenghty and prone to human error.

2. Accuracy vs inaccuracy

ICO Pass can utilize multiple databases whilst traditional methods rely only on few at most.

3. Transparency vs opacity

ICO Pass gives out data why a certain result occurred, i.e. what databases were checked and what results obtained.

4. Immutability vs malleability

Current methods of KYC checks can be tampered with. ICO Pass utilizes the Ethereum blockchain, thus verifying that once something is written on the blockchain, it cannot be changed.

5. GDPR vs non-GDPR compliant

General Data Privacy Regulation in the EU is the most robust privacy regulation in the world, which is about to be enforced in May 2018. Current KYC methods would need to do additional measures to comply with this regulation whilst ICO Pass’ encryption deals with it already.

6. Expensive vs inexpensive

Traditional methods would have to use huge amounts of money to keep the identity data secure whilst with ICO Pass the information is encrypted and only accessible to the person at hand

7. Cost: 7€ vs 230€

The most secure method at the moment to do KYC checks is by Bitcoin Suisse, a Swiss-based financial service provider specializing in crypto assets, but it costs 230€ per check. This is way too much for many ICO’s to handle (thus many don’t bother). ICO Pass has streamlined the process so that it costs a mere 7€ to do a single check.

The founders of another startup going through MANUALLY over 5k KYCs! Need a hand?

What is extremely cool is that the KYC info will be reusable for use in other ICO’s, should the crowdsale host decide so. This is very handy for the shot-gun investor who seeks allocations in promising blockchain startups. Anyone who has done a KYC know it can be tedious. One KYC procedure asked for two prior residential addresses and move dates. Digging up this kind of information is both time-consuming and a nuisance.

The current situation

The team behind ICO Pass, who obviously had done extensive research before sculpting their product, found out that a single bank can spend, on average, $500m a year for KYC and Customer Due Diligence (CDD). This is an enormous sum of money. Moreover, there is a steep shortage of KYC specialists. With the blooming of the digital currency infrastructure, KYC will only become more and more important in the future.

After taking over the ICO KYC acreage, the ICO Pass team will start to build and offer a similar product aimed towards banks and other financial institutions. However, as they are not currently hip with the Ethereum blockchain, that can’t be used as the platform. But let us focus on the present day for now.

The ICO of ICO Pass

The company will use their own product to perform the KYC checks on their own ICO. This is a fantastic litmus test for the product and should point to any shortcomings. The ICO runs between May 8 — May 28, 2018.

It will be a Dutch auction. A rare and unusual choice for an ICO. In this type of auction the price starts at a very high level and slowly climbs down. Participants can start buying tokens when they feel that the price is right. However, even if you bought at the very first hour (which will give you a nice 15% bonus), you’d eventually only pay per token the final price. The MAXIMUM price of the token (ICOP) will be 0.25€. 20 million tokens will be sold during the auction out of the total 60 million. No more tokens will be minted ever. For the financial savvy in you, you could start to speculate the market cap already, but it’s quite hard not knowing the price of the token.

The token will be called ICOP (ERC-20) and will be listed on decentralized exchanges soon after the ICO, but according to the team, they are also eager to push the listing on centralized ones, like Binance. A soft cap of 500,000 EUR and a hard cap of 5,000,000 EUR has been decided. There is no minimum amount of tokens that have to be bought. About the maximum, I advise you to approach the team.

The Founders— Two Janises and a Gints

Please visit https://icopass.id/ for a mode in-depth look on the team

The founders have extensive knowledge and experience in e-signature and state ID architecture. In addition, they have experience working with aforementioned banks. They have a VERY transparent and fast way of communicating via their Telegram group or email.

Q&A Time

Below are some questions poised by the ICO Pass Telegram group members and two of the founders’, Janis Kirstens, the CEO and Janis Graubins, the CCO, answers.

Q: I’m too lazy to read what the project is about, can you tell me?

A: Automatic mobile identity verification, low marginal cost, scales like crazy, amazing possibilities ahead, 0 friction self-service for other ICOs to gather KYC.

Q: Do you have a detailed development plan?

A: We don’t have a published development roadmap (there is a short roadmap in the technical whitepaper now), but we have an internal list of tasks, which are planned. These include:

  • the development and release of a dashboard web application, where people can access the KYC information, which is available for them. Export it, delete it, get in touch with people who sent it, etc.
  • we plan to have it open source, and provide a hosted version for people who don’t want to host it themselves
  • a service where ICOs can register their tokensales and metadata (logo, description, contract addresses, start/end dates, etc.). We would sign this information and the ICO Pass mobile applications would allow a streamlined+branded user experience for sending KYC information to these (with the assurance that the addresses are not scams)
  • for service providers looking for authentication, we plan to provide an SDK for requesting authentication. Users which have verified themselves could use this information to e.g. sign up for accounts with crypto exchanges, and not have to wait for their identity to be verified
  • we plan to integrate more KYC databases in the backend, for more thorough verifications (some are mentioned in the prospectus)
  • a web-based interface in addition to the mobile interface
  • integrate banking APIs (such as the UK’s OpenBanking, or EU’s PSD2 APIs, or Kontomatik etc.) to provide more advanced verification. For example, if we can determine that user’s income exceeds certain thresholds (based on their bank API provided information), we could classify them as eligible for investment, even if they are in otherwise restricted jurisdictions

Q: Does the plan have a detailed expenditure plan and there know how long will this raise last?

A: We currently have a burn rate of 30k EUR a month. If we raise at least 500k EUR, with the current team size it will last for 1,5 years. Additional 50k would be spent on travel. The current team has 1 Business Developer, One Legal and Operations Manager and 4 developers (our CEO is also developing product).

Q: Will you have another raise at a later date?

We might have another raise later to enter the banking industry. In that case the existing tokens will be upgraded.

Q: How much is allocated to marketing? (is that enough)

Marketing budget is based on the revenue that we will receive. Currently 20% of the tokens that we own will be allocated for this — in other words 2.8% of the revenue will go into marketing budget.

Our current approach is speaking with Token Sale organizers directly. The information about Token Sale is put on ICO listing sites — typically before they have made a decision how they will solve KYC. Using this approach we already have lined up several Token Sale organizers that would like to use our product. That said, we believe that the existing marketing budget will be enough. In case we will raise more than 500k EUR, we will use a more sophisticated Marketing Plan that will be developed together with Unit9.com (that is my previous work-place) or other digital agency.

Q: Can you approach governtments ie US, China and offer their solution as means of meeting regulatory requirements, thus representing the best marketing possible?

A: We are already doing this in Europe. Some exciting news coming up soon. In US and China we plan to work closely with regulators as well and contribute to their policy making. In Europe we already have experience contributing as advisors to electronic digital identity regulations.

Q: How does giving back the 7% to investors work?

A: We offer a revenue sharing model. Tokens sold will give 7% of the ICO Pass revenue. Revenue collection and distribution will happen automatically using smart contracts. You can find more about that on our Prospectus that is on web.

Q: What is the token distribution? (% for sale, team, reserve, advisors etc.?)

A: For sale there are 1/3 of all tokens. Team holds 20% out of 2/3 of tokens (are locked for a year). Marketing budget is 20% out of 2/3 of tokens. Out of Marketing budget tokens goes to Bounty campaign. Together not more than 50% of Marketing budget campaign will go to Bounty campaign and Advisors.

Q: Do you have any legal counsel?

A: Legal Counsel is Valentins Ginko and the firm is Vilgerts (http://www.vilgerts.com). They help preparing Terms and Conditions for Sale.

Q: Can you tell me how your project is different from KYC.Legal?

A: We do everything in an automated manner and remotely as opposite to KYC.Legal. Also compared to KYC.Legal we can do full KYC check much faster and in a much more cost effective way.

Q: How do you differ from Civic?

A: Civic is just giving promises but actually they do not have a solution that a person can use for KYC. Also as they need a special token for using it, makes things even more complicated. We on the other hand have a product that works and everybody will be able to test it out during our Token Sale.

Outlook

If ICO Pass manages to do what it claims — fast, secure and inexpensive KYC checks for ERC-20 ICOs — I believe the future looks bright for them. Certainly there are risks involved — especially as the crypto world is currently rather unregulated and issues like security loom large. These risks include that ICO organizers don’t see the value in the product, that AML requirements become too widespread and different to keep up with, that there are developmental delays or that new startups enter the market.

There are risks in every industry and especially startup, so that is nothing new. How you manage risk, prevent it and deal with it, is what counts. I believe that the team possesses the knowledge, experience, resilience and stamina to sit through problems and make things happen.

ICO Pass has already raised 500,000€ in a private sale so there certainly exist investors who trust them. Currently their ICO Bench rating is at 4.3 / 5 (7 expert ratings) if that is anything to go by.

Relevant info in a nutshell

Company website: https://www.notakey.com/

Country of origin: Latvia (EU)

Product website: https://icopass.id/

Area of expertise: Digital identity checks

Token name: ICOP

Tokens in total: 60m

Tokens for sale at ICO: 20m

Blockchain: Ethereum (ERC-20)

KYC registration for ICO: TBA

ICO date: May 8 — May 28, 2018

Twitter: @ICOPassid

Telegram group: https://t.me/joinchat/Fc2D7BEPyFu2XQbTXvmQ2A

References

Bitcoin Suisse

https://www.bitcoinsuisse.ch/

ICO Pass Prospectus:

https://drive.google.com/file/d/1gQvsfRDO5LzR7AWrvv9ouPae7MNdJ3r4/view

ICO Pass Technical Whitepaper:

Notakey @ Kickstart Accelerator:

The above should not be considered financial advice. Always do your own research and tread carefully!

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