The New KYC — From Know-Your-Customer to Know-Your-Company

Following another hack or possible exit scam involving Cryptopia, the issues of security and trust again take center stage with cryptos. Know Your Customer is the default strategy implemented when it comes to due diligence. In an effort to weed out malicious or dubious individuals, banks get to know their customers by checking individuals’ credit scores to ensure trustworthiness. However, the Know Your Customer method has its limitations and it might be time to start using the Know Your Company method instead.

It’s important to arm yourself with the right research in order to prevent you from falling for a cryptocurrency scam or fraud. What entices people about cryptocurrency is its decentralization model.

Unfortunately, the feature that draws people to use cryptocurrency makes interactions potentially vulnerable.

Below is the checklist our experts have designed for you.

1. How many buzzwords are used? Is there any actual work on a project?

The greatest magicians aren’t great because they know how to perform magic. They’re great because they are able to distract audiences’ attention from the task at hand. While the audience is focused on tricks like “watch the ball” or “escaping from a water tank,” the magician diverts the audiences’ focus while making the trick seem real.

And much like magicians, companies dealing with cryptocurrency sometimes use distractions, like buzzwords and concocted work, to sell products. The current trend for cryptocurrencies, unfortunately, is to be overloaded with descriptive buzzwords. There is a great temptation to label cryptocurrencies with terms like IoT or Dapps in order to make them appear legitimate. Because the cryptocurrency industry is new and deception is easy, it’s important to do your homework on how a company makes its money instead of relying on trendy words and phrases.

Another way cryptocurrency companies can deceive customers is to provide the illusion of productive work. Needless to say, working products with viable business model are less risky compared to projects without any working product. However, some companies offer no new products or ideas but instead have a token sale to generate money for a new idea. In this way, it’s less likely that they’re selling a product, and more likely they’re using cryptocurrencies as a Kickstarter style investment. A legitimate company that has new ideas will establish a coherent way to generate money from those ideas, not hide the absence of a product or method from customers.

While buzzwords and non-product related work may not actually be dangerous, it’s important for investors to see that a possible dumping/exit scam might be a future eventuality, especially since cryptocurrency is not well-regulated.

For example, it is becoming common for a new cryptocurrency to spring up, its founders make big promises, and the company disappears leaving the customer without their money. No one is immune to cryptocurrency scams, not even technology legends like Steve Wozniak who lost $4,900 when someone bought 7 bitcoins from him with a stolen credit card.

2. Is the project promising something too good to be true?

New technology doesn’t override old adages: if it seems too good to be true, it probably is (especially on the Internet).

So if you’re being promised a very high return, this should be a signal that the investment is very risky. That great return on investment might be a scam, possibly even a Ponzi scheme. The greater the promises, the bigger the chance you have of losing everything.

Before investing in something that promises much higher yields than other investments, make some rational calculations and dig deeper for more information about the company’s investment methods.

Can the company explain coherently how it is that the returns are supposed to happen? Something doesn’t come from nothing, so make sure that the company is clear and open about how it is they plan on returning (or improving) your investment.

3. Is there transparency of the people involved?

Transparency is a key principle in Know Your Company. Getting to know a company means checking the founding team and its credentials.

The people element of cryptocurrency is volatile, so it’s important that you know who will be handling your investment.

If a company doesn’t show you who’s working behind the scenes, it’s a definite red flag.

You want to be able to see the experience and background of every member of the team, as well as being able to check their credentials.

If the company does show you the people behind the scenes, you should investigate further into who they are and what their background is as it relates to investing. Google is a great resource, as well as LinkedIn and Facebook.

If these people don’t appear that they can be trusted with your money, consider doing business elsewhere.

The structure of the team is important too. Look for a visible, experienced team that is actually doing something.

If nothing seems to be happening, or it looks unlikely anything is happening, this could be an empty promise made by a company that has no intention of delivering.

4. Where is everything happening?

Finally, in your research, see if you can get an idea of where the company and work is taking place. Legitimate businesses tend to have a physical location, even if most of the employees work remotely.

Look for contact information and ask the following questions. Does the company have a legitimate business address with a real office? Is there somewhere that you can write to or call? Has the company claimed its business on Google? Does it have a social media presence, especially on LinkedIn? You also want to check regulatory agencies for every country the company has an office in to see if the company and exchange are registered.

If a company is claiming to make great investments, it’s important to see where your money is going. If the mailing address is a PO Box or an unofficial location, this could indicate that the business is based out of somebody’s spare room. While this is not necessarily a red flag, it does look suspicious.

Many scam artists use PO Box addresses to hide their identities so they can more easily steal your money. Make sure you learn all you can about the company and its founders before committing to any investment with a company whose primary location is a PO Box.

5. Company updates and policy on security and process

When it comes to the structure and operation of an investment company, there are certain protocols that should be in place and easy to discover. For instance, when it comes to the protection of your data, how do they suggest the best way to deal with this? What kind of security do they use to make sure that their systems aren’t vulnerable to being hacked?

Because you’ll be trusting the company with personal and private information, it’s also important to understand how the company handles registered users’ data. The company should be forthcoming and able to clearly explain its policies regarding this.

Any reticence on the part of the company is likely to indicate something potentially unsafe. It’s vital at this point to make sure that you trust your instincts as well as hard facts. Don’t be won over by enticing, unrealistic options: Know Your Company.

Following these points is more likely to keep your transactions safe, but what other tactics do you use to run your own due diligence? Share them with us below. If you put your trust in the right company, yet still worry about the plunge in crypto, probably, these posts can help.

Originally published at whalelend.com on March 7, 2019.