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What is a crypto whitelist?

By Kraken Learn team
5 min
8 жовт. 2024 р.
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Unlocking access to crypto sales 💻

  • A crypto whitelist refers to a list of participants or crypto addresses that have been approved to take part in an event (such as an initial coin offering or NFT mint).

  • Whitelists are used by DeFi projects and major exchanges alike, primarily as a way to comply with anti-money laundering (AML) and Know Your Customer (KYC) regulations.

  • Only the user or crypto wallet address that has been whitelisted is able to participate in the subsequent event.

Since the launch of Ethereum, initial coin offerings (ICOs) and similar mechanisms have become a staple for projects seeking to raise funds and distribute tokens. Notable examples include EOSIO (which raised upwards of $4 billion) or Yuga Labs’ Otherdeed (whose NFT mint grossed ~$320 million).

In its simplest form, a token sale involves users sending funds to a specific crypto wallet address in exchange for an amount of crypto tokens. 

In a bid to crack down on crypto fraud, many blockchain projects now require prospective buyers to join a whitelist prior to participating in token sales.

A whitelist in crypto is just that: a list. On it, the details of the users permitted to participate in the sale/mint of a new token. 

To get onto the list, they must meet the criteria set out by the organizer — which could range from simply providing an email address to completing quests and submitting identity documents/proof of address. 

Without meeting the necessary criteria, users are not able to participate.

Why are crypto whitelists important? 🤷

Whitelists have a handful of use cases within the crypto ecosystem.

Sometimes, they’re used as an effective marketing tool: by promising exclusive access to only a select number of users, whitelists can generate hype and FOMO (fear of missing out). 

Variations on this concept can include discounted pricing (prior to a public sale), or the ability to access a larger allocation than non-whitelisted users.

Whitelists can also be used to reward holders of certain tokens, for example, by allocating a percentage of the supply of a new NFT to holders that already hold an existing NFT by the project.

These lists play an important role for security purposes and regulatory compliance, too, particularly when whitelist membership requires identity verification.

Less commonly, the term whitelist can refer to a list of withdrawal addresses that a centralized exchange user must approve before sending funds.

By having an approved "address book," they reduce the risk of accidentally transferring to the wrong wallet.

crypto transaction

How the crypto whitelist process works ⚙️

To illustrate the role of a whitelist in a regular token sale, consider the following scenario:

  1. Alice deposits funds from her crypto wallet into the token sale contract.

  2. The contract computes how many tokens to send to Alice based on the deposited amount.

  3. The contract sends Alice’s token allocation to her wallet address.

Prior to completing these steps, Alice would need to join the project’s whitelist — sometimes several months in advance of the token sale.

It could be as simple as a Google Form asking Alice to input her Discord handle and the address she’ll use to deposit. Alternatively, it could be a drawn-out process that requires her to submit multiple documents for human review before she is able to register her public wallet address.

To prevent non-whitelisted participants from discovering the smart contract address upon launch and getting involved, the contract may encode a list of whitelisted addresses (like Alice’s) — ignoring contributions from addresses it doesn’t recognize. 

Projects may also cap the amount of tokens they distribute based on the deposit amount, to ensure that no participant receives an outsized allocation.

Common requirements for whitelisting

There are no hard-and-fast rules for whitelisting — a project could choose to only whitelist participants who post a video to Instagram of them dancing in a purple tuxedo if they so choose.

However, it’s more common to gate token sales by requiring identity verification — which usually requires the participant to provide proof of address, proof of identity and a liveness check

The role of KYC in crypto whitelists

KYC is an important consideration for many crypto projects:

  • It helps the organizer adhere to regulations by identifying their prospective buyers.

  • It acts as a layer of security against bots, Sybil attacks and other attacks that could overwhelm the organizer’s server or provide an unfair advantage to a single entity masquerading as many.

  • It enables the organizer to more easily block certain geographies (IP address detection can easily be circumvented with a VPN).

The benefits of joining a crypto whitelist 🏆

Joining a whitelist can provide significant advantages for traders.

Namely, it grants them early access to cryptocurrency projects and their tokens, often with advantages such as bigger allocations and more favorable prices.

crypto whitelist coin

Risks and considerations when joining a crypto whitelist 🧐

Inevitably, a whitelist involves sacrificing a degree of privacy, as it involves tying personal information to a crypto address. In an extreme case, this information could be used to deanonymize the participant or track their on-chain activity.

For some, this trade-off is acceptable, while others may find it too intrusive. It should be noted that sharing personal documentation with any third party carries inherent risks, as malicious actors (internal or external to the project) could potentially use it for nefarious purposes.

Before signing up, it is strongly recommended that participants conduct thorough due diligence on any project conducting a token sale, and take precautions to avoid crypto whitelist scams (wherein the project team launches a bogus token with the sole intention of harvesting personal data).

Crypto whitelist security

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