Coinbase successfully applies for patent for KYC tool to identify bad accounts

The major U.S. cryptocurrency exchange Coinbase has recently been granted a patent for a system that identifies and tags non-compliant accounts.

Coinbase submitted a document to the US Patent and Trademark Office on 11/18 detailing this identification system. The system includes a scoring model that determines the compliance score for each account based on various factors associated with each account and then compares the compliance scores of each account to detect those that do not meet compliance standards.

Accounts that do not meet compliance standards can be forcibly closed by the system, particularly those suspected of engaging in illegal activities, as emphasized by Coinbase.

The compliance score mentioned above, in simple terms, is determined by certain data points entered or executed by users, including user age, account balance, transaction volume, location, verification history, and the number of devices with access privileges. The document also notes:

Investigators can research parties involved in receiving or sending payments and determine if these parties are regularly engaged in illegal activities to ascertain if an account is being used for illicit purposes.

While it is currently unclear if Coinbase intends to implement such a system, the exchange has a strict customer review system and anti-money laundering policies in place to assist in compliance with US and international laws.

On the flip side, this system also signifies a deeper level of control over users by the exchange, which some may argue goes against the purpose of using cryptocurrency for transactions.

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