KYC Verification – What Is It?

In the case of traditional financial institutions, such as banks, most customers have already become accustomed to the procedures used and the necessity of providing personal data. The situation was somewhat different in the world of cryptocurrencies. Currently, the obligation to verify customers, including the so-called KYC procedure, is also increasingly being introduced in this space.

What is the KYC procedure? Who must go through such a verification process? Have all exchanges implemented it? What are the advantages and disadvantages of KYC? You can read about it below.

Identity Verification Process and Cryptocurrency Exchanges – What Is KYC?

Increasingly, numerous financial institutions are required to identify their customers. Identity verification is also necessary. For this purpose, the KYC (Know Your Customer) procedure is used.

This usually involves performing several actions to confirm one’s identity and verify that one is the person they claim to be. This usually concerns basic personal and contact data, sometimes also sending a scan of an identity document or a bank statement. Depending on the country, the range of required basic documents may vary.

Such actions were introduced to increase the overall level of security, prevent financial crimes, and combat the financing of terrorism.

From this perspective, KYC, as a due diligence procedure, is part of the broader AML procedure. One of its main goals is to check the database to see if a person belongs to politically exposed persons or is subject to sanctions. Certain entities, including financial institutions, are obliged to apply an internal AML procedure. Currently, KYC has also become a hot topic in the world of cryptocurrencies. More and more exchanges are introducing mandatory identity verification for current and new customers.

AML (Anti-Money Laundering and Counter-Terrorism Financing Act) and Financial Institutions – Which Cryptocurrency Exchanges Have Not Implemented KYC?

The majority of cryptocurrency exchanges have implemented a KYC policy, presenting customer data verification as part of caring for the safety of their users. This is often mentioned by Binance, for example. Recently, the KuCoin exchange also joined such entities, as we wrote in our July post: “Changes in KuCoin – Mandatory Identity Verification.” In its case, unverified users lost access to many key functionalities.

However, there are still platforms that do not apply the KYC procedure. This includes Kraken, where it is still possible to trade cryptocurrencies without sending identity documents, without worrying about restrictions.

Benefits and Limitations of Implementing KYC on Cryptocurrency Exchanges

The KYC process is treated quite distrustfully by customers of the cryptocurrency market. Many people are afraid of providing confidential data to applications – especially since we do not always know exactly how such a customer database will be used. Data leaks can occur in less secure applications. Moreover, collecting personal data for a large group of traders is contrary to the basic ideas of the crypto space – decentralized, anonymous, and caring for user privacy. It should also be noted that the implementation of customer identification required the introduction of new mechanisms and processes. This means that collecting personal data and its administration is another cost for the exchange, which will be borne by the users.

On the other hand, KYC can bring many benefits. Implementing identification helps to increase the credibility of a given platform and improve the level of security for users and their money. At the same time, the risk of suspicious transactions, theft, and other cybercrimes to which an honest customer may be exposed is reduced.

Using the KYC Procedure in the World of Cryptocurrencies – Summary

The KYC procedure aims to curb illegal activities, improve security, and credibility of cryptocurrency exchanges worldwide. However, customers dissatisfied with the implementation of the KYC policy still have a choice and can use other applications. Will such an option be maintained in the coming years? Of course, we will inform you about all changes in the market.