Nowadays there are no such rules and regulations so each platform can choose to implement it or not. However, there are many benefits associated with this procedure. Thus, honest users will only profit from it.
What Is KYC and Why Does It Matter For Crypto exchanges?
16 Mar, 2023
Most financial organizations are obliged to identify and control their clients and customers. This occurs with the help of the KYC (Know Your Customer) process is a part Anti-Money Laundering (AML) system. Why do these measures exist? There are several purposes including reputational and security issues. However, the main points that were emphasized during the introduction of this system were the prevention of money laundering and the financing of terrorism. The thing is that when the person is not identified he or she can operate with illegal money or spend them on illegal issues. From this viewpoint, verification seems more than logical. Still, what is KYC in cryptocurrency? This area was designed to be highly confidential and decentralized. Then, why do we need any authentication at all? Let’s discover the intricacies of this question to understand what is crypto KYC and how it Is used.
What is KYC verification?
If a cryptocurrency exchange like Exolix wishes to comply with Anti-Money Laundering (AML) rules, it must gather some data to identify the clients. The process in general is as follows:
- When one creates an account, he is asked to provide full name and other sensitive information proved by certain documents.
- The platform does the validation procedure and checks the verity of this data using some official resources. In addition, it determines the risk profile of the user.
- Based on the results of the previous step, the client gets access to the exchange or not.
That is the general answer to what is KYC verification crypto. The detailed procedure varies according to the platform and may take different times. However, it means full and true identification in any case.
Advantages for crypto: what is KYC?
There are numerous discussions on what is a KYC in crypto and how it must be utilized in this area. Still, there is a list of benefits that are associated with the platform that uses it.
No problems with regulators
If there is KYC, the platform has fewer legal disputes or fines. Implementation of this procedure proves its reliability. Moreover, there will be no need to follow legislation that is constantly changing. Instead, the platform can focus on development and try to make its overall performance better.
Trust of the customers
Clients who care about their security understand this issue. They will not ask what is KYC crypto and will not oppose it if they are honest. If this procedure is present, then the platform reveals its reliability and one can be sure that it is safe to make transactions here.
Unsafe transactions as well as money laundering contribute to the increased volatility of the market. Investors are not interested in such destabilization that is why some level of control is welcomed.
Prevention of reputational damage
If this procedure is implemented, it is much easier for the platform to determine criminals in case of an attack. There will be an opportunity to block suspicious accounts immediately and secure all other users.
What is KYC in crypto: useful details
Any government or central bank does not regulate the world of crypto. Therefore, users here can make a transaction, swap and convert assets with low fees very quickly. Moreover, all the activities were created to be anonymous so a person does not need to provide any personal data. No wonder criminals who wish to avoid AML rules became highly interested in it. For instance, exchanges appeared to be a great place to launder money – convert them into crypto and back. When no one asks about the origin of these finances, what can be better for them? Therefore, the issue of KYC compliance in this area also became crucial. There are many honest investors, users who wish to play openly here, and they do not want to become victims of scammers and suffer from their activity. Still, not all the platforms have introduced this procedure. Those users who wish to avoid it will find different alternatives. While using them, it is important to keep in mind the following risks:
- A lower level of security and more chances to get hacked;
- Lower liquidity due to the smaller size and number of customers. It may be challenging to find counterparts for trade here and the fees will be higher;
- Due to the higher risks, the cost of using such services is on average higher.
The protection of personal data is of great importance nowadays, especially in the crypto world. One can use a platform with or without KYC but it is related to different risk levels.
Frequently Asked Questions
Yes, there are different options to do this. First of all, not all exchanges have this procedure. In addition, one can utilize an ATM to purchase crypto with cash without such verification. There are also some decentralized exchanges that never ask for sensitive data.
This procedure means the verification and validation of the user’s identity by providing official documents. If the platform uses it, the client is asked to provide documents while creating an account. They are checked and then the decision is made on whether or not to open it.