Are Bitcoin transactions not supposed to be anonymous?
That is a question that is likely to come to your mind when you are asked to provide some form of identification before you buy or sell through a bitcoin ATM.
Yes, the foundation on which bitcoin is built allows sending and receiving money without giving personal identifying information. However, regulation is making this impractical.
A case in point is the Know Your Customer (KYC).
Regulation is meant to protect the customer and the public
If you have never come across the phrase Know Your Customer, this is a process of collecting and verifying the identity of customers before, during and after a provision of a service.
The result may be denying those who do not meet some specific requirements the service or reporting suspicious activities to relevant authorities for further actions. In the case of bitcoin transactions, it may also include limiting the amount of money a client can exchange at a go.
The main purpose of the whole of this is to preempt activities by criminal elements such as money-laundering, terrorist financing, identity theft and other forms of fraud.
KYC would be a thorn in your flesh especially if you fell in love with bitcoin in the first instance due to its anonymity element. Nevertheless, it is considered a good financial practice that every legitimate financial service provider must adopt.
It is important to mention, however, that the need and form of compliance in this area differ from country to country.
Bitcoin ATMs have to comply for they are considered money service businesses
In the United States, all money service businesses (MSB) are supposed to know who they are doing business with.
In a guide, the FinCEN published in March, 2013, Bitcoin related enterprises were classified as money service businesses. Even from the loosest interpretation, Bitcoin ATM operators are subject to these requirements.
That means that they are required to identify their customers through reliable information and documentation. Know your customer involves mostly collecting identifying data and monitoring transactions and reporting suspicious activities,
CoinOutlet is a manufacturer of bitcoin ATMs that are KYC compliant both in terms of the hardware and software.
This enables operators to carry out due diligence, keep necessary records and monitor cash flow.
Hopefully, now you understand why a bitcoin ATM operator may ask you to provide some form of identification before you buy or sell bitcoins.