The IOTA Foundation will supply the underlying network infrastructure, making use of an Ethereum Virtual Machine (EVM)-compatible IOTA Smart Contract Chain. walt.id will provide the decentralized identity and wallet infrastructure necessary for creating and verifying SBTs. IDnow is tasked with delivering the identity verification solutions for user onboarding. Bloom Labs will offer a wallet solution that enables users to store, present, and prove ownership of SBTs, and SPYCE.5 will ensure seamless interchain communication and transaction validation for regulatory compliance and system efficiency.
IDnow, a prominent identity verification platform provider in Europe, has joined forces with four other partners, including the IOTA Foundation, walt.id, SPYCE.5, and Bloom Labs.
The partnership aims to ensure compliance for Crypto Asset Service Providers (CASPs) and self-hosted wallets with the European Union’s Anti-Money-Laundering (AML) Regulation and the Transfer of Funds Regulation (TFR).
What is the Transfer of Funds Regulation (TFR)
The new TFR regulation requires that all cryptocurrency transactions include the identifying information of both the sender and the receiver. This mandate makes it necessary for all CASPs to adhere to the TFR, aligning them with other financial institutions under similar AML rules. For CASPs, this means implementing an identification process for users when opening accounts and registering wallets.
A significant challenge in complying with these regulations is adhering to the General Data Protection Regulation (GDPR), particularly concerning the storage of personal identifiable information (PII) on blockchains or Distributed Ledger Technologies (DLT).
To overcome this obstacle, the consortium proposes a novel solution involving the tokenization of identification processes by a trusted party. This process generates a soul-bound token (SBT) that can be used in blockchain transactions, facilitating web3 interactions without disclosing PII. Authorized entities, like law enforcement, can request the disclosure of identity information, and the SBT can also be revoked when necessary.
IOTA’s infrastructure + walt-id’s decentralized identity + SPYCE.5’s validation + IDnow’s KYC solution
The IOTA Foundation will supply the underlying network infrastructure, making use of an Ethereum Virtual Machine (EVM)-compatible IOTA Smart Contract Chain. walt.id will provide the decentralized identity and wallet infrastructure necessary for creating and verifying SBTs. IDnow is tasked with delivering the identity verification solutions for user onboarding. Bloom Labs will offer a wallet solution that enables users to store, present, and prove ownership of SBTs, and SPYCE.5 will ensure seamless interchain communication and transaction validation for regulatory compliance and system efficiency.
Rayissa Armata, Director Global Regulatory and Government Affairs at IDnow, said: “We are excited to be part of this forward-thinking consortium alongside highly esteemed crypto asset industry players to address a pressing need for crypto wallet solutions that comply with the latest EU regulations. Crypto companies are facing a race against the clock to implement new requirements, which is why we wish to submit this proposed solution to the EU for consideration to address the technological and regulatory challenges around AML, KYC and TFR in crypto.”
Dominik Schiener, Chairman of the Board of the IOTA Foundation, said: “We are thrilled to be working with such incredible partners to create a truly seamless user experience and to provide the underlying distributed ledger technology. Identity verification in Web3 environments should be simple and straightforward, without sacrificing privacy or security. As regulatory requirements grow, we need innovative solutions that are easy to use for both businesses and everyday users.”
Dominik Beron, Founder of walt.id, said: “We have been building decentralized identity and wallet solutions for many clients across various industries, but this project is particularly interesting as it shows new ways of onboarding and verifying users for crypto and DeFi use cases that have traditionally been struggling with regulatory compliance.”
Nicole O’Brien, Co-founder of Bloom Labs, said: “Bloom is excited to be collaborating with the partners in this consortium. This project will ensure our users and the crypto ecosystem can benefit from a self-hosted wallet that complies with EU regulations.”
Holger Köther, Managing Director of SPYCE.5, said: “We’re proud to be part of this groundbreaking consortium, leveraging SPYCE.5’s hybrid chain architecture to navigate the complex landscape of EU regulations. Our innovative approach ensures not only compliance but also maintains the integrity and efficiency vital in the crypto space.”
