Ravencoin — KYC Transitivity
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What does that even mean, “KYC Transitivity”? It’s a term that I heard once in the context of entities trusting KYC from others, and it resonated with me so I adopted it.
KYC Transitivity is a logical and trust relationship between entities.
Let’s define our five players:
- A— Entities that have a policy of doing KYC correctly and thoroughly and then tagging Ravencoin addresses. This would include Finclusive.
- B — Users that can’t hold securities tokens without KYC being done for regulatory reasons. This can be the general public or accredited investors.
- C — Companies that can only interact with B if KYC is done. This would include exchanges or alternative trading systems (ATS).
- D — An issuer of a token like $NEWCO. This is someone wanting to raise money for their business in an STO.
- E— Regulatory agencies that enforce the rules around the Bank Secrecy Act and additional Patriot Act requirements. This would include FinCEN, FBI, etc.
Ok, so let’s say that D (token issuer) wants to issue $NEWCO tokens that are limited and only to known (KYCed) parties for regulatory reasons. The $NEWCO token can be restricted to only Ravencoin addresses that have the #KYC_F tag.
D sends the future token holder to A (qualifier) to have their information collected, stored, and a tag applied to a Ravencoin address. Once the tag has been applied, D can safely issue and send the restricted $NEWCO token to B (user) with the assurance that KYC has been done.
A must be trusted by B, D, E, and hopefully C in the future when secondary trading is allowed for the token. Since D trusts E and E trusts A, then through transitivity D trusts A. Likewise, C trusts E, and E trusts A, then through transitivity C trusts A.
Now E is happy because at any time they know exactly where to present legal paperwork to get the private personally identifiable information for a crypto address if it is ever needed in an investigation or enforcement.
Once secondary trading is allowed for $NEWCO, C (exchange) does not need to collect additional information because the #KYC_F tag specifies both who is holding the KYC info (meta-data for #KYC_F tag) and also provides a digitally signed guarantee for every tag that the information is being held satisfying the requirements of E.
