Both cryptocurrency and Legal Entity Identifiers (LEI’) aim to solve a common issue: a fragmented system without a central authority. Cryptocurrency aims to create digital money which is not bound by any central bank, while LEI is an identifier for legal entities which do not have a central registry. In other words, cryptocurrency wants to create a decentralized form of money, while LEI aims to have a decentralized registry for legal entities.
In cryptocurrency, a digital wallet address can be controlled by an individual or group of individuals under a business. This is considered as a unit of account for tax and other purposes.
How is it useful in cryptocurrency?
Legal Entity Identifiers are now used in cryptocurrency. The biggest advantage of using these LEI codes is reducing risk due to fraud, corruption, and error. The use of the LEI code will also result in a reduced cost during the identification and verification of legal entities involved in trading. This will also help reduce time spent on verification compared to when physical documents are used.
In cryptocurrency, LEI codes are mostly used for compliance in a business environment. The implementation of these codes in the crypto world is through smart contracts. A third-party service provider uses them to offer services to both individual and institutional clients. This will help in the process of identification and verification of legal entities involved in trading.
Five reasons why Legal entity identifiers are important for cryptocurrencies
Credit cards are no longer an option.
Credit card companies ban transactions for certain goods and services they don’t like, such as buying cryptocurrency or other services that are banned on the grounds of traditional and cultural values, making it difficult to pay with cryptocurrencies. To solve this problem, you must go through Simple LEI code registration and renewal processing. Legal Entity Identifiers are convenient because banks and credit card companies can easily verify them.
Serve as a proof of address for cryptocurrency exchanges.
It’s easy to set up an unregulated cryptocurrency exchange with anonymous owners that might run away after you’ve paid your bitcoins. The government can shut down these exchanges if they don’t follow their know-your-customer (KYC) and anti-money laundering (AML) policies for all the exchange customers. This is a big problem because it could make cryptocurrency much less useful as a decentralized payment option. You need to use them in exchange to convert real money into cryptocurrency. The solution would be for cryptocurrency exchanges to verify their customers’ identities using Legal Entity Identifiers, so all the banks and credit card companies will know who they are dealing with when accepting payments.
Open up new markets for cryptocurrencies.
Might be difficult or even impossible to send bitcoins to certain countries or regions because the sender’s bank might not have any correspondent banking relationships with the receiver’s bank in the recipient country. This means that it might be impossible to send payments to people living in certain African, Asian, or South American countries. Also, some countries like India have banned cryptocurrencies completely. Legal Entity Identifiers would solve this problem because all the banks and credit card companies must comply with the regulations they must follow in their country of residence.
Easier KYC/AML compliance for cryptocurrency exchanges
All KYC/AML regulations require that you need to verify your customers’ identities when doing business with them. Legal Entity Identifiers will become much easier to verify your customers’ identities because the banks and credit card companies will know who you are dealing with. This would make it much easier for cryptocurrency exchanges to follow all KYC/AML guidelines.
Enable cryptocurrency ATMs
Many people are trying to stop crime in the financial sector and hinder legal transactions between friends or family who want to send money home. The solution is easy: ATMs and other services that allow individuals to exchange cash or electronic money will need Legal Entity Identifiers for all the users. This way, we can eliminate anonymous accounts and do away with today’s race to the bottom in KYC/AML standards for fear of missing out on global transactions.