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Why Giant Does Not Need KYC

22-09-2018

This material explains how the ‘Know Your Client’ principle is not applicable to the Giant blockchain and Giant.Exchange - the first decentralized application based on this environment. As you are about to witness, the blockchain of Giant and solutions used in the Giant-backed decentralized applications (DApps) allow to prevent financial crimes with the KYC level of efficiency.

What Does KYC Mean?

The ‘Know Your Customer’ principle is aimed at countering money laundering and terrorism financing. Traditional financial organizations (mainly banks) are using it widely, and there have been talks on the cryptocurrency sphere needing to implement this principle too. In practice, this simply means the verification of the user identity by using the copies of his/her identification papers. Another crucial element of KYC is the monitoring of financial transactions. Some cryptocurrency exchanges have installed it to quickly identify fraudsters. There has recently been a rise of such events due to the increased pressure of regulators. Despite this, the current international laws do not demand KYC installed on all decentralized exchanges.

KYC and the Giant Blockchain

The blockchain of Giant is a hybrid ecosystem that uses and combines the latest achievements of other cryptocurrency development teams - you can read more about these inventions in a dedicated material. Giant Coin itself would not be an efficient money laundering tool - all transactions are recorded in the distributed ledger and are visible in the Block Explorer. This is similar to Bitcoin, a cryptocurrency which, contrary to a popular misconception, can actually help to detect criminal activities online — and this is one of the crucial elements of the KYC policy. This shows how the Giant blockchain achieves the same goals the KYC-using organizations are pursuing. Like in Dash, all privacy tools are optional.

The Giant developers do not own any cryptocurrency exchanges which convert Giant Coin into other currencies and vice versa. In case you are using a separate digital currency exchange as a Giant Coin wallet provider (term comes from the FATF papers on cryptocurrency), this exchange developers are responsible for any potential hosted wallet security issues and transactions monitoring. Whether to apply the ‘Know Your Client’ principle or not - this is the issue all exchanges decide individually. As with the overwhelming majority of cryptocurrencies, Giant founders do not control the Giant blockchain, the related financial community or its participants.

KYC and Giant.Exchange

Giant.Exchange does not allow to trade currencies for currencies - instead, traders are betting on the price motion by using the pre-created binary options contracts. The user funds originate from their money converted on crypto exchanges not in any way related to the original Giant founders. Brokers who create their own smart contracts cannot tamper with their basic mechanism - they can only change the individual parameters, for example, reward number, data source and time duration. It is impossible to receive the Trader funds for Brokers, as all the money is placed on the dedicated smart contract which does not belong to anyone and cannot be hacked.

There is a lot of problems that centralized financial organizations have but decentralized do not. In a notable example, all Giant.Exchange smart contracts check for the actual presence of the funds of all parties involved - nobody can claim to have a certain sum of Giant Coins without actually possessing them. Contrary to this, paper contracts cannot automatically check for parties’ funds immediately at the stage of creation. With the Giant protocol, you cannot bet the money you don’t have and create binary options uncontrollably. The Giant.Exchange budget is stored on a separate smart contract which has an explicit prohibition for anyone to get immediate access to the savings. The masternode holders’ vote can determine how this budget will be used in the near future.

To create smart contracts on Giant.Exchange, you must be a masternode owner. One masternode costs 1000 GIC or $496 at the time of writing. Only one account can use a certain masternode to create smart contracts, meaning it would be hard to multiply accounts. Any engagement with long-lasting effects on the Giant.Exchange blockchain requires a transaction signature with the masternode key.  

Same obstacles are made for those who would want to act as an Oracle and play dirty: Oracles can only find the cryptocurrency exchange API and provide data for Brokers, there is simply no room for manipulation. Same principles apply to all other Giant smart contracts creators. Theoretically, a fraudster could create a new crypto exchange with false information and try to connect it to Giant.Exchange via a new ‘Oracle’ smart contract, but all new contracts are listed only after the major support of other masternode owners after a dedicated vote takes place. There’s even more: any anomalous smart contract may be deleted after a community vote.

Speculations and other illicit activities appear in communities where the rules are unclear. The Giant.Exchange rules are quite strict towards all the binary option contract parties which eliminates the opportunity to deceive investors.

In a way, Giant.Exchange has its own public KYC system where all active smart contract creators are connected to a known masternode. The user reputation system can also show any suspicious actors. When a new Oracle connects an unknown exchange as a new price data source or when a new Broker creates a binary option related to a previously-unknown digital asset, not only his/her smart contracts are likely not to pass the community pre-approval, the reputation may easily become downvoted by other members. The wide range of offered smart contracts will ensure that the majority of users will choose the best-working ones.

Conclusion

Let’s summarize what prevents financial crimes on Giant.Exchange:

  • currency conversion is not available;
  • high masternode price barrier for rogue Brokers and Oracles;
  • the prohibition to use one masternode for multiple accounts;
  • funds availability confirmation;
  • Brokers can only change the basic parameters of a binary option contract;
  • Oracles can only change the data source API;
  • smart contract votes with all other masternode owners participating;
  • user reputation system.

This leaves only one opportunity for criminals - to hack our platform and/or Giant blockchain. As you might deduce, KYC has never stopped hackers from stealing bank funds. Decentralization is what can completely eliminate a single point of hacking and solve other different security issues. Giant.Exchange is just one of the possible means of interaction with the Giant blockchain, and this is why its potential vulnerabilities are not a threat to users. It is important to note here that any people posing as ‘Giant administrators’ who ask for your Giant Coin wallet data and/or Giant.Exchange account credentials are only trying to steal you money. If you don’t tell your passwords to anyone, you are unlikely to suffer from any criminals on Giant.Exchange.

Note that Giant.Exchange is just the beginning of Giant smart contracts-based decentralized applications. By using our structure, everybody will be able to create a separate platform with stricter or more liberal rules of participation.

References

  1. Giant, Giant Blockchain: The Best Features of Dash and Ethereum https://giantpay.network/pages/giant-blockchain-the-best-features-of-dash-and-ethereum
  2. Berkeley News, In a Step Toward Fighting Human Trafficking, Sex Ads Are Linked to Bitcoin Data http://news.berkeley.edu/2017/08/16/in-a-step-toward-fighting-human-trafficking-sex-ads-are-linked-to-bitcoin-data/
  3. The Financial Action Task Force (FATF), Guidance for a Risk-Based Approach to Virtual Currencies http://www.fatf-gafi.org/publications/fatfgeneral/documents/guidance-rba-virtual-currencies.html

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