Cryptocurrencies continue to gain popularity around the world. Every year, more and more people and companies are starting to use digital assets in their work. However, despite the development of this industry, the regulation of cryptocurrencies remains complex and ambiguous. One of the most important aspects of working with cryptocurrencies is obtaining a license.
What is a cryptolicense and why is it needed?
Before delving into the risks, it is important to understand what a crypto license is. This is an official document that is issued by the country’s regulatory authority, allowing the company to legally engage in activities related to cryptocurrencies: trading, storage, exchange and other services. Obtaining a license for crypto exchanges, for example, has its own nuances. A license for crypto exchange is often used, and without such a document, the legitimate functioning of the platform is almost impossible.
The license confirms that the company complies with established security standards, implements anti-money laundering (AML) measures and complies with the “know your customer” (KYC) rules. However, many companies, trying to reduce costs or speed up the process of entering the market, choose to work without a license. This saves time at the start, but creates a lot of problems in the long run.
Risks in the absence of a cryptolicense
Working without a license may seem tempting, but in fact it is fraught with great difficulties. The main risks that arise in the absence of a license:
- Legal consequences. Working without a license may violate the laws of the country where you do business. Regulators can impose fines, freeze the company’s assets or completely ban its activities. In addition, legal problems may affect not only the company, but also its management. In some countries, criminal penalties may even be applied for working without a license.
- Loss of customer trust. Customers are increasingly choosing reliable platforms that guarantee the security of their funds. If the company does not have a license, users may doubt its transparency and professionalism. As a result, there is an outflow of customers and reputational losses.
- The risk of blocking accounts and transactions. Banks and payment systems are reluctant to cooperate with companies that do not have a license. This can lead to the blocking of accounts, the inability to conduct transactions and serious financial losses. Regulated partners (for example, banks) check the company’s compliance with standards, and the lack of a license causes distrust.
- Lack of protection in case of problems. Licensed companies are required to comply with security standards and provide customers with protection of their funds. In the absence of a license, the client, faced with problems, remains without support, since the activities of such companies are not regulated.
Examples of possible problems
To better understand what consequences may arise, let’s look at some examples:
- The company operates without a license, and at some point the regulators of the country where it operates discover violations. This leads to fines and suspension of activities.
- A platform without a license becomes the target of a hacker attack. Damage to customers and lack of guarantees of compensation lead to lawsuits.
- The lack of a license does not allow the company to enter international markets, as it does not meet the requirements of other countries. This limits the growth and development of the business.
How to minimize risks
If you plan to work with cryptocurrencies, it is important to assess all the risks in advance and choose the right approach. Recommendations:
- Apply for a license. Yes, the process can take time and require investments, but this is the best way to avoid most risks. This is especially important for companies that want to conduct international activities. If, for example, you manage an exchange, a license for crypto exchange becomes a prerequisite.
- Follow the KYC and AML rules. Even if you are still working without a license, it is worth implementing measures to combat money laundering and customer identification. This will help improve the company’s reputation and reduce risks from regulators.
- Cooperate with lawyers and consultants. Professional help will help you understand the nuances of legislation and avoid mistakes when working in different jurisdictions.
- Work only with reliable partners. Choose banking and payment services that have a good rating and work with crypto companies. This will help reduce the likelihood of accounts and transactions being blocked.
Working without a crypto license seems like an easy way to avoid bureaucracy and unnecessary expenses, but it can turn into serious problems for businesses. Fines, legal proceedings, loss of customers and inability to scale — all these risks make obtaining a license a reasonable step for any company working with cryptocurrencies.