Blockchain 101: Why Does Coinbase Need My ID?

Why Does Coinbase Need My ID?

Before asking ‘Why does Coinbase need my ID’, let’s discuss what Coinbase itself is

First of all, Coinbase is a cryptocurrency exchange. Cryptocurrency exchanges are businesses that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional (fiat) money. Crypto exchanges are a convenient “on-ramp” to the digital assets industry because they generally accept debit card payments, credit card payments, wire transfers or other forms of payment, in exchange for digital currency or cryptocurrencies. We’ll get to the question ‘Why does Coinbase need my ID’ in a bit of a later section, as we need to cover some basics first.

Coinbase and the Reasons for Scrutiny

Coinbase, specifically, is a publicy traded company based in the United States and is governed by the federal regulations put in place by the United States Federal Government. Coinbase is in a very precarious position as it relates to regulation, due to being publicly traded (much scrutiny) as well as a financial institution (even more scrutiny) dealing with investments, cryptocurrency transactions and trading, anti-money laundering, and transferring funds to and from fiat currencies to a Coinbase wallet.

Coinbase and the New York Stock Exchange

Here are a few of the organizations that Coinbase must adhere and abide to the whims of due to being publicly traded:

  • PCAOB: Public Company Accounting Oversight Board
  • SEC: Securities & Exchange Commission
    • Division of Corporate Finance: Ensures investors are provided with material information in order to make informed investment decisions
    • Division of Enforcement: In charge of enforcing SEC regulations by investigating cases and prosecuting civil suits
    • Division of Investment Management: Regulates investment companies and federally registered investment advisors
    • Division of Economic and Risk Analysis: Integrates economics and data analytics into the core mission of the SEC
    • Division of Trading and Markets: Establishes and maintains standards for fair, orderly, and efficient markets
    • Division of Examinations: Conducts the SEC’s National Exam Program

Now, here are some additional organizations that due to Coinbase dealing with fiat currency, financial product, cryptocurrency trading, etc:

  • FRB: Federal Reserve Board
  • IRS: Internal Revenue Service
  • FinCEN: Financial Crimes Enforcement Network
  • BIS: Department of Commerce’s Bureau of Industry and Security
  • OCC: Office of the Comptroller of the Currency
  • FDIC: Federal Deposit Insurance Corporation
  • OTS: Office of Thrift Supervision
  • CFTC: Commodity Futures Trading Commission
  • FINRA: Financial Industry Regulatory Authority
  • State Bank Regulators
  • State Insurance Regulators
  • State Securities Regulators

Preventing Money Laundering and Scams

As you can see from the above section, Coinbase is under much scrutiny from organizations and regulators just strictly for where the organization is positioned in different industries. The main reason of the organizations above is to prevent money laundering, protect the customers using the Coinbase website, and, of course, the IRS would like their cut in U.S. dollars in the form of taxes.

Registered as a Money Services Business

The technical definition of the term “money services business” includes any person includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

  • Currency dealer or exchanger
  • Check casher
  • Issuer of traveler’s checks, money orders or stored value
  • Seller or redeemer of traveler’s checks, money orders or stored value
  • Money transmitter
  • U.S. Postal Service

An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler’s checks, money orders or stored value; and seller or redeemer of travelers’ checks, money orders or stored value. The threshold applies separately to each activity — if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity.

No activity threshold applies to the definition of money transmitter. Thus, a person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity.

Complying with Financial Services and Consumer Protection Laws

Coinbase is required to comply with financial services laws and consumer protection laws. A few are listed below to give you an idea of a good reason or two why this might be necessary:

  • The Bank Secrecy Act, which requires Coinbase to verify customer identities, maintain records of currency transactions for up to 5 years, and report certain transactions
  • The USA Patriot Act, which requires Coinbase to designate a compliance officer to ensure compliance with all applicable laws, create procedures and controls to ensure compliance, conduct training, and periodically review the compliance program
  • Most states’ money transmission laws and corresponding regulations

So, Why Does Coinbase Need My ID

Okay, it looks like we have finally made it. In the section just above, the Bank Secrecy Act specifically states that Coinbase must verify customer identities. This can be used for good (consumer protection) and nefarious reasons (encroaching on personal information under the guise of finding illegal activities), but no matter what, this should paint a much clearer answer to the question ‘why does Coinbase need my ID’.

What Data Will Coinbase Actually Review

The first step when opening new accounts with Coinbase is the identity verification process, usually using a Driver’s License or government-issued photo ID, Passport, or Social Security Number or similar ID number. This process can usually be completed using an authenticator app on your mobile device in under 2-3 minutes if completed correctly.

Then, new Coinbase users must provide the information below to create your new Coinbase account and crypto wallets:

  • Legal Name
  • First Name
  • Last Name
  • Date of Birth
  • Home Address
  • Proof of Address
  • Phone Number
  • Email Address

After completing Coinbase verification process, congrats you are now among the many Coinbase customers and a Coinbase account holder!

Next Steps After Coinbase Reviews My ID

The first place you’ll want to go after providing your private information for Coinbase to approve your account request is your friendly neighborhood app store to download the Coinbase app. Through the mobile app you will need to turn on two-factor authentication to prevent identity theft, among several other security measures.

Next, following the ID verification process, you’ll want to set up a payment method with your specific payment information to fund your cryptocurrency account. This can be credit cards, debit cards, using crypto assets from other crypto trading platforms – such as Bitcoin cash, etc. – among several other options.

Then, you’ll want to set up a withdrawal method in order to retrieve funds back from the original Coinbase platform and either transfer them to offline cold storage, the Coinbase safe wallet, a brokerage account, or just using your withdrawing bank account information – whatever is the best option for you at the time.

Finally, once that is all complete, you can create your wallet and will receive private keys that only you should know. Unless you succumb to a phishing scam or something similar, only those with physical access to your private keys would have access to your cryptocurrency.

Final Thoughts on Why Does Coinbase Need My ID

In summary, now you should be able to see the regulatory bodies that oversee Coinbase due to it being a publicly traded company that is not only a professional trading platform and financial service provider, but a platform in cryptocurrency markets. All these hoops to jump through for retail customers can be very daunting. However, there are many Coinbase document verification options that work for your specific verification purposes.

Taking each issue step-by-step makes the process quite a bit simpler, and the beauty of getting through the process, is that proves you are now ready to jump into the fun part in the exciting world of cryptocurrency trading, purchasing, and selling!

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