KYC for NFT Marketplace: Key Reasons to Use

NFT is one of the main trends nowadays in Blockchain world. It’s already become a profitable business for the art creators and owners of venues where they are displayed and/or sold. Although relatively few facts of fraud in this area have been recorded so far, some experts are already asking - are NFTs money laundering?

Since the possibility cannot be ruled out, so the market must be strictly regulated. Therefore, identity verification in working with NFT will be the best solution.

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What is NFT?

Non-Fungible Tokens are intangible cryptographic certificates of ownership to digital objects stored in the blockchain, thus making it impossible to substitute, tamper with or counterfeit them.

An NFT cannot be cashed out or sold in parts since its value is integral. While the original digital object can be copied, the corresponding NFT serves as irrefutable proof of ownership, allowing it to restrict any unauthorized usage immediately.

What is NFT?

How does it work

There are many adaptive online platforms where you can purchase digital assets or put them up for sale. In addition to the digital catalog, the invariable attributes of such a site are a smart contract, a personal account, and a close relationship between the seller and the buyer.

Due to the efficient operation of blockchain-based systems, NFT transactions between decentralized applications are simplified. Unique data makes it easy to verify ownership and conduct transfers. The process includes the following:

Registration Wallet selection Digital asset offer Choice of the buyer Processing of the transfer by the platform

Blockchain registers and publishes data on all transactions. That is, the buyer receives irrefutable and immutable evidence of their purchase.

Is KYC Protection Needed for the NFT Marketplace?

This year, the US Department of Treasury published a study that notes that the risks in this area are currently relatively high. Features that make the market attractive for money laundering through legitimate transactions are:

Speculative prices Easy transfer of art objects A culture of privacy that allows subjective pricing and manipulation Extensive use of art as investments and financial assets

These aspects of the market create vulnerabilities. Suppose blockchains allow transactions to be tracked without the preliminary identification of the wallet owner according to the Know Your Customer (KYC) guidelines. The wealth can be transferred anonymously. Thus, the emerging market represents a massive risk of untraceable financial crime.

Is KYC protection needed for the NFT marketplace? Experts believe all market participants, including credit boutiques and auction houses, should be subject to AML requirements. They are required to report suspicious activity and launch verification systems that do not allow masking the origin of funds.

Sellers verification to comply with regulation

Sellers verification to comply with regulation

Given the growing popularity and trading volumes, regulatory organs are discussing expanding the mandatory AML scope. A marketplace with firmly established KYC procedures can help to erase the possibility of fraud by vetting the customers properly.

The efficient KYC system should contain capabilities to:
Identify individuals behind shell companies
Take a quick and effective check of all the resellers, clients, and transactions

In this regard, a public mechanism for exchanging information that allows checking customer interaction history in the whole market can help. Using a single database with services for identifying the identity of buyers and sellers would be ideal.

Creator (seller) verification to confirm ownership of the NFT

Creator (seller) verification
to confirm ownership of the NFT

The platform and buyers should not suffer at the fault of unscrupulous sellers or intruders. Do NFTs need KYC and AML checks? Definitely. But for this, the verification system must provide two things:

Confirmation of ownership of the digital asset. Verification of delivering the NFT to the buyer

The system must solve the problem with the trusted exchange. To start the process, the seller deposits the NFT into the escrow smart contract, thus affirming that they own it (you can't deposit something that doesn't belong to you). That is, the ownership check is resolved automatically

NFT trading platforms identify users at the registration stage. KYC is used for transactions carried out with the participation of payment providers.

The verification system can perform a simplified check during registration and a more complex verification for deposits in conjunction with payment providers. Platforms can also use reusable KYC, which allows you not to repeat the check several times.

Large buyers verification to comply with AML

Large buyers' verification to comply with AML

Prominent art market participants, galleries, and intermediaries, marketplaces

These large buyers are required to implement systems that establish the frequency of participation of legal entities in auctions. Based on this segregation, the NFT marketplace KYC verification system should issue risk recommendations.

In addition to collecting information and implementing due diligence measures, it must be able to report suspicious transactions and activities in the art market to clients. In this regard, sites are required to more widely accept AML requirements and expand existing programs for the voluntary collection of information about customers and transactions with a high threshold.

Employ the Top-of-the-shelf KYC!

Employ the Top-of-the-shelf KYC!

The popularity of NFTs is growing, so investments in technological platforms pay off quickly. But if you do not use flexible solutions, there cannot be a 100% guarantee of AML compliance and transaction security

KYC for the NFT marketplace system by KYCAid includes many advanced solutions and tools that provide high accuracy and low time costs for verification. We offer a complete set of services for NFT marketplaces: Document Check, Liveness verification, AML screening, and proof of address to confirm the residence of the seller or buyer. In addition, our system works instantly, 100% reliably, notifying customers of the slightest potential threats.

By choosing a solution from KYCAid, you get effective KYC for the modern NFT marketplace at a bargain price!

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