Learning the friendly way

Any crypto trader or investor will know the rigorous, albeit essential, process of completing KYC practices before being able to buy or sell Bitcoin and other cryptocurrencies. In this article, we're debunking the myths and highlighting the reality of why these Know Your Customer processes are necessary, and how it fits in with AML (anti-money laundering) laws.

As cryptocurrency exchanges continue to solidify their position in the greater financial landscape, the need for strict and regulatory practices has increased. Due to the nature of cryptocurrency transactions being pseudonymous, the need to weed out illicit activities is imperative. 

With little regulation in place, the market remains vulnerable to all kinds of criminal activity, from terrorist financing to ransomware attacks. While regulators were scrambling to change this, a whole new industry within the crypto space evolved. From the even more decentralised nature of DeFi to entirely unregulated NFT dealings, both financial regulatory bodies and institutional investors have joined forces to create more structured frameworks to fight blockchain crime. The results have proven to be successful.

With fast-changing landscapes and increasing innovation, regulating the crypto markets comes with a need to match the pace. Considering that the current financial regulatory frameworks were created based on fundamentally different economic principles, regulatory bodies have their hands full when it comes to building and implementing regulations that can support, while not extinguishing, this financial services revolution. Not to mention the laws required from an insurance standpoint.

What Is AML In Crypto?

Anti-money laundering encompasses a range of regulations, procedures and laws to stop criminals from disguising illegally obtained funds as legitimate income. These measures were not implemented into big exchanges in the early stages of the crypto timeline, but are rather now making their way into platforms' due diligence processes as per tighter regulations. These generally involve traders confirming their identity before being able to conduct any payments when buying digital assets or executing any crypto transactions. 

As noted in the banking and crypto industries, when individuals or businesses attempt to conceal unlawful earnings this is typically done in three stages: placement, layering, and integration. The placement layer involves the money being deposited on the crypto exchange. 

The layering stage is when the illegitimate funds are mixed with legal funds making it challenging for authorities to keep tabs on them. In the final stage, the laundered money is "cleaned" and returned to the beneficiary. This is how criminals circulate illicit income and manage to launder money undetected.

In the decentralised world of cryptocurrencies keeping tabs on such activities has its own set of challenges. Hence why AML measures and controls are vital to the industry's operations as well as reputation. 

However, as mentioned above, these measures need to be carefully implemented so as not to kill the nature of why people are attracted to cryptocurrencies in the first place (being free from third parties or central authorities). The regulations need to respect the decentralised nature of cryptocurrencies while still providing the opportunity for policing should illicit activities be happening, and then needs to be built into the business model of the company providing the crypto services.

The Crypto AML Red Flags

While there are plenty of anonymous means of transacting your crypto, such as privacy-focused cryptocurrencies, there are still several aspects that traditional cryptocurrencies possess that trigger red flags when it comes to AML.

The estimated amount of money laundered in 2021 is $800 billion - $2 trillion, with roughly 50% of money laundering going undetected. According to a Basel System Report, 62% of compliance officers in business crime say that this type of criminal activity is becoming more difficult to spot. With this in mind, here are the top AML red flags that are present across the board: 

Obscured identity of transaction makers

Unclear transaction size 

Obscured geographic location

Unofficial profiles of parties involved

Lack of information on the source of funds

Withdrawing funds from a wallet with no transaction history

Consecutive high-value transactions

How AML Protocols Are Implemented At Crypto Exchanges

As crypto exchanges work toward integrating cryptocurrencies into the mainstream financial landscape, they are required to work hand in hand with regulatory bodies. These actions vary around the world, with many countries opting to embrace different methods of imposing AML practices. 

Here is a look at how 5 countries imposed varying rules:

The U.S.

Governed by the Financial Transactions and Reports Analysis Centre (FINTRAC) and Financial Crimes Enforcement Network (FinCEN) the country has strict regulations when it comes to AML and KYC regulations. It continues to work on the legal framework.

South Korea

Following an investigation with crypto exchange Bithumb revealing that $1.45 billion worth of funds were illegally moved through the platform, the country is working on imposing more defined AML and KYC rules.

Singapore

Taking a rare approach to crypto regulation, the financial hub of Asia and a key player in the development of the blockchain and crypto industries, Singapore is choosing to educate people on the technology rather than impose stringent policies. 

Canada

The country recently imposed regulations under the guidance of the FINTRAC unit that mandates the same KYC requirements as traditional financial institutions.

Thailand

The Thai regulatory bodies have implemented regulations to keep foreign investors out of their local markets by upgrading their KYC regulations with in-person verification and microchips in their ID cards. 

Today, most modern nations have implemented rules that demand businesses to use sophisticated technologies to prevent crypto from being utilised to finance unlawful activities and protect their investors.

Cryptocurrency compliance is an industry that has its own set of rules. Every year, businesses must demonstrate greater levels of security and minimise risks in order to stay compliant. KYC/KYB/AML processes are taken very seriously by reputable cryptocurrency firms. They might be subject to huge penalties if they fail to comply with this requirement.

In Conclusion:  AML Is Here To Stay

While these new financial transparency measures might go against the very nature of cryptocurrencies, it is important to ensure the security of crypto users, and for the overall adoption of the industry. They also play an imperative role if crypto wants to live alongside fiat currencies in the global financial landscape.

The introduction of new global regulations contributes to the growth of the cryptocurrency industry. Despite a widespread misconception, digital currencies are traceable and do not account for most financial crimes.

Reputable cryptocurrency platforms collaborate with law enforcement to assist in the prevention of illegal activities. They also safeguard their users from fraud and other potential risks.

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We are delighted to announce the listing and support of 1Inch (1INCH) on Tap!

1INCH is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold 1INCH for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting 1INCH will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

1inch is a cryptocurrency trading tool for traders, allowing them to quickly find and access competitive prices on decentralised exchanges (DEXs) using its innovative 1INCH token, which provides both utility and governance functionalities to token holders.

By utilising 1inch, traders have the convenience of trading from a single platform while being exposed to the lowest trading fees and best prices across several DEXs.

The 1INCH token is an ERC-20 token that serves as a utility and governance token for the platform.  On top of functions like spending, sending, holding, and staking, the 1inch token also provides voting rights to token holders on any proposed updates to the protocol.

Get to know more about 1Inch (1INCH) in our dedicated article here.

The recent fall of FTX comes with devastating consequences to many, cooling the conditions of an already chilly crypto winter. While the loss of consumer funds and the drop in crypto prices across the board are detrimental to many in the new-age financial system and it’s anticipation of regulators’ reactions that are adding to the hysteria. 

After taking a deep dive into exactly what happened at FTX, we take a look at the response from regulators and what this is likely to mean for the greater crypto industry. 

The FTX death spiral and its effects on the crypto financial system

The history

To understand the full demise of FTX, one needs to understand its history. In 2019, when FTX launched, Binance was a prominent investor and partner. CEOs, Sam Bankman-Fried (FTX) and Changpeng Zhao (Binance) had a mutually beneficial strategic partnership and amicable relationship.

This soured as FTX grew in size and they became the two top centralized entities in the crypto ecosystem, and ultimately largest competitors. Just last year, both exchanges accounted for roughly 30% of trading volume on crypto exchanges, accounting for over $27.5 trillion. 

The breakup

In 2021, things reached a pinnacle point in their relationship and FTX bought Binance out of the partnership, paying $2.1 billion, much of that with FTT, the platform’s native token. Fast forward to November 2022 and Changpeng Zhao (CZ) tweeted that he would be liquidating the FTT crypto assets as a result of Sam Bankman-Fried speaking ill of Binance to regulators and other “recent revelations”. 

The allegations

It is believed these revelations were that FTX’s sister trading company, Alameda Research, was in financial trouble, an allegation made by Coindesk and Mike Burgersburg, the man who accurately predicted the Celsius crash. At this point, we should mention that Alameda and FTX’s combined FTT holdings account for 75% of the entire supply. 

With Binance announcing that they were going to sell their crypto assets, accounting for 7.4% of the entire FTT supply, shockwaves were sent through the industry. 

The consequences

In a matter of hours, the FTT price dropped 83%, trading at $18.72 before dropping to $3.14. In a desperate attempt to stabilize the market, Alameda offered to buy Binance’s FTT supply, to no avail. 

At the same time, investors rushed to pull their funds from the exchange, estimated to be roughly $6 billion worth of net withdrawals. In light of the recent Terra LUNA crash and subsequent demise of Celsius and Voyager, investors were taking no risks. 

The next twist in this unfortunate story is that FTX froze all withdrawals on the platform and announced that it was going into a “strategic transaction” with Binance, with Binance set to buy its biggest competitor. The acquisition was rumored to be worth $1.

This all came crashing down several hours later when CZ announced to his Twitter following that after reviewing the books they would no longer be moving forward with this plan. 

Within 24 hours, the broader crypto assets market started to feel the effects. Bitcoin was down 16%, Ethereum down 24% and Solana, widely backed by Sam Bankman-Fried, down 43%. 

On November 10, Sam Bankman-Fried announced that Alameda Research would be “winding down trading” and issued an apology to his Twitter following. FTX is in the process of sourcing funding for liquidity purposes, with the platform estimated to need around $10 billion in order to honor customers' crypto assets withdrawal requests.

What was really going on at FTX?

This story boils down to CZ tweeting that he would sell his FTT in light of allegations, which created mass FUD and subsequently led to the demise of its biggest competitor. How did a company, considered a heavyweight in the financial markets, worth $30 billion a few months prior and making 8 figures in revenue a day suddenly become insolvent?

Industry insiders believe that the relationship between FTX and Alameda was a bit more reprehensible than it appeared on the surface. Based on leaked insights into Alameda’s financials, it is speculated that Alameda used a significant portion of its FTT holdings as collateral to borrow funds from FTX (these funds being customer funds).

While illegal, this also poses a high risk that could see the collapse of both platforms, and consumer funds along with them. If this is proven to be true, jail time could ensue. 

In an internal email circulated to the Binance team, CZ stated that this was not part of a greater plan, nor is it a win for Binance as the greater crypto economy will be affected. From investor trust to crypto prices dropping to the hawk-eyed regulators eagerly watching from the sidelines, the demise of FTX is in no one’s favor. 

Ultimately, the same catalyst that saw the fall of Celsius has been observed here, FTX used its own token as collateral. Let this be a warning sign for any future trading platforms, and a prominent note for those working on crypto regulation.

What this means for the regulation of crypto exchanges

Before any regulators could even whisper a word, big platforms like Binance, KuCoin, OKX and more are believed to be in plans to implement Proof of Reserves accountability. This involves an independent audit of funds by a third party, made available to the public.

The Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), three of the biggest financial regulators in the U.S. have begun (or are continuing, in some cases) investigations into FTX. It is believed that the Texas Securities Board started investigating the exchange and CEO in October. 

In the wake of the aftermath, the White House is also calling for stronger crypto oversights and Californian regulators have announced that they are launching an investigation into FTX, asking customers affected by the virtual currency calamity to come forward. 

Insiders are faulting U.S. regulators for not having more clear guidelines in place, saying that their “stringent-yet-unclear” frameworks have driven big exchanges overseas where there is even less of a regulatory landscape and taxes often go unpaid. With the proper legal framework in place, perhaps situations like these could be avoided, and instead of fleeing, people would trust in U.S. regulatory standards. 

Regulators need to find a balance between creating and implementing legal frameworks that both support the innovation and development of the crypto space but at the same time keep avaricious CEOs in line and all centralized operations above board. 

Regulations put in place to hinder money laundering have been successful, with little consequence to the trader. There is no reason why regulations implemented to stop such happenings in the crypto world could not have the same success.

The latest crisis in the cryptocurrency space is likely to push regulators to amplify their work on building legal frameworks for platforms managing digital assets to adhere to, not just in the U.S., but globally. 

What this means for crypto assets and the crypto industry

While Bitcoin, Ethereum, Solana and most other cryptocurrencies are recovering from lows of yesterday, there is a somber feeling in the crypto space knowing that to the week a year ago Bitcoin and Ethereum reached their current all-time highs.

Crypto trading is known to have its risks, and the responsibility to stay within the green lines falls on the individual trader. While many investors embrace the “hodl” approach (hold the investment for long periods of time), it is of the utmost importance to stay in the know about what is happening in the market and to thoroughly, very thoroughly vet the coin they are looking to invest in. 

Another, perhaps most important, precaution to take is to work only with crypto platforms that are regulated by government-endorsed financial bodies. Just because you are working with decentralized digital currencies doesn’t mean that you should throw caution to the wind and leave your funds unprotected.

Taking this very seriously, Tap is licensed and regulated by the Gibraltar Financial Services Commission and insures all funds through a reputable crypto insurance service. Rest assured that we are constantly being regulated, sticking to the stringent guidelines laid out before us, and protecting our consumers’ funds at all times. 

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We are delighted to announce the listing and support of Aave (AAVE) on Tap!

AAVE is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold AAVE for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting AAVE will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

Aave is one of the leading decentralized finance (DeFi) protocols on the market, allowing users to easily borrow and lend over 20 different crypto assets. Leveraging the age-old financial practice of lending and borrowing, the platform empowers users to manage their assets in a decentralized manner.

AAVE is an ERC-20 token that acts as a backstop for the Aave protocol, protecting the system from having a shortage of capital. The Aave token allows users to vote on the platform’s direction and future Aave protocol developments. Aave token holders are granted voting rights based on their holdings. The Aave system uses fees paid on the platform to buy back AAVE tokens and remove them from circulation. Approximately 80% of the fees paid are used for this burn purpose, while 20% are used to incentivize lenders.

Get to know more about Aave (AAVE) in our dedicated article here.

We are delighted to announce the listing and support of Axie Infinity (AXS) on Tap!

AXS is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold AXS for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting AXS will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

Built on the Ethereum blockchain platform, Axie Infinity is a video game that uses NFTs to represent unique creatures, abilities, land plots and other in-game assets. Through the game, users can earn Axie Infinity Shards (AXS) and Smooth Love Potions (SLP, formerly Small Love Potions).

AXS are non-fungible tokens based on the ERC-721 Ethereum-based token standard. While used in the game for payments, these tokens also serve as governance tokens, allowing holders to have a say in the development of the project. These digital currencies can also be traded on external exchanges.

Get to know more about Axie Infinity (AXS) in our dedicated article here.

When faced with something new or unfamiliar, especially when dealing with money, people often tend to automatically put it into a box. Unfortunately, Bitcoin is no exception. Since its rise in value since its initial launch in 2009, many have been skeptical of how and why it could do so. In this informative article, we explore the common misconception that Bitcoin is a Ponzi Scheme. 

What Is A Ponzi Scheme?

First, let's take a look at what a Ponzi Scheme actually is. Ponzi Schemes are fraudulent investment scams which promise high rates of return with minimal risk. This is orchestrated by a "portfolio manager" taking an investment (payment) from a new recruit and using those funds to pay off earlier investors, taking a portion of the funds for themselves. 

The new recruit will only be paid once they have recruited more new people, whose funds will be used to pay off their investment. As long as new people are entering the system, the earlier investors are seemingly making profits. This all falls apart when the pool of potential investors becomes saturated and no new investors are entering the system. 

The business concept was first mentioned in literature in the 1800s but was officially coined in the 1920s after a person by the name of Charles Ponzi. Ponzi schemes pose as financial services and are illegal in the UK and most other countries and are punishable in the same light as anti-money laundering.

Why Bitcoin Is Not A Ponzi Scheme

As Bitcoin is an entirely decentralised asset and operates using the transparency of blockchain technology, Bitcoin cannot be a Ponzi Scheme. Due to the nature of blockchain, anyone at any time can verify all transactions made on the Bitcoin network, dissimilar to a Ponzi Scheme where "investments" are shrouded in secrecy. 

Ponzi Schemes need to obfuscate transactions from both investors and regulators in order for the scam to work, which is the exact opposite of how blockchain functions. These issues alone prove that Bitcoin cannot be a Ponzi Scheme.

Instead, Bitcoin is open to anyone and following one purchase the investor can own and hold the original cryptocurrency. As a digital currency, Bitcoin is stored in digital wallets which are accessible to anyone, without the need for lengthy paperwork. Most exchanges offer users access to a Bitcoin wallet, which can easily be accessed directly on the platform.  

Bitcoin Volatility Confirms It Is Not A Ponzi Scheme

Not often seen in a positive light, Bitcoin's market volatility puts the final nail in the coffin when considering whether Bitcoin is a Ponzi Scheme. See, in Ponzi Schemes investors receive suspiciously consistent returns, which is just not plausible when it comes to trading Bitcoin.

Day traders have been known to witness high price swings over short periods of time, sometimes losing or accumulating a large amount in mere hours. This is entirely unrealistic when it comes to the functioning of a Ponzi Scheme. 

Instead, Bitcoin's price history has shown that substantial growth is generally witnessed in four year periods. This is in line with the Bitcoin halving event, an automated change to the miner's rewards which manages the number of new coins entering circulation. After every 210,000 blocks are added to the network's blockchain, the halving event is initiated, and the rewards are automatically halved. History has shown that roughly 12 - 18 months later Bitcoin has seen substantial gains. The next halving to take place will be in 2024. 

How To Avoid Ponzi Schemes In The Crypto Realm

While Bitcoin and other cryptocurrencies are not Ponzi Schemes themselves, that doesn't mean that Ponzi Schemes cannot use Bitcoin to lure in potential investors. Beware of any investment "firms" looking to invest in crypto for you, particularly if they're claiming to provide inflated rates of returns. 

Instead, invest in crypto yourself through a reputable platform like Tap and take matters into your own hands. Buying cryptocurrency is simple, you can do so with a credit card or bank transfer, and then the funds are stored in the digital wallets allocated to you specifically. From the mobile app you have full control over your funds, able to sell or buy at a moment's notice. The platform also utilises integrated technology which scans multiple exchanges and order books around the world to find you the best price in real time. 

Stay clear of Ponzi Schemes and other investment scams, and utilise the financially-inclusive world of crypto investments yourself.

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