7. Fraud Prevention

7.1 How Reputation Prevents Fraud

Merely making the protocol fully anonymous would do little to preclude the possibility of users misusing the platform. However, combined with the strict reputation system for on-ramp transactions, the chances of a buyer committing impersonation fraud drop drastically, especially given the meager amounts they can transact with their expectedly suspicious on-chain reputation.

It is worth noting that centralized exchanges routinely face difficulties in implementing a viable KYC procedure for their users. The Protocol's non-custodial KYC works just as effectively as a traditional KYC in preventing fraud, while retaining the benefit of anonymity for the user if no illicit activity surfaces over the course of their interaction with the platform.

7.2 Anti-Money Laundering Through Transaction Limits

The underlying RP mechanism practically eliminates the risk of money laundering and similar malevolent practices. The transaction limits imposed naturally take care of anti-money laundering compliance. There is simply less of a scope for any non-trivial amount of black money to be laundered given the lack of transactional scalability and the reputational banning risks involved.

7.3 Merchant Accountability

The selected nature of the merchants fulfilling individual orders—via the Proof-of-Credibility algorithm—means a serious disincentive and unlikelihood for any merchant to attempt a fraudulent transaction.

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