Cryptocurrencies continue to disrupt the world of finance. However, because cryptocurrencies secure transactions cryptographically on their blockchains, users generally conduct transactions anonymously and instantly. Moreover, crypto transactions present opportunities for criminals seeking to evade conventional AML/CFT controls and global regulators are now paying unprecedented attention to cryptocurrencies.
What Is KYC Crypto:
Crypto KYC is a legal requirement for centralized exchanges to check and verify the identity of their customers. Moreover, it is designed to ensure that their users do not use crypto-launder money, evade income tax, or finance illegal activities.
With their inherent connection to money and fictitious digital assets, crypto-exchanges are particularly vulnerable to fraudsters and criminals. Also, this is why governments have implemented increasing KYC and identity verification regulations recently. Crypto exchanges and crypto enthusiasts still see it as an unwelcome barrier.
How Does KYC Work With Crypto?
KYC checks in crypto are similar to the process of traditional financial institutions. Rules are set by government regulators and must be followed depending on the geographic location of the crypto exchange. The cryptocurrency KYC process will require the user to verify:
- Full Name
- Residential Addresses
- Date of Birth
- Identity document confirming the above.
These checks can be done manually but are more likely to be automated through KYC software, offering a risk-based approach and identity verification tools.
Benefits Of Using KYC In Crypto:
Implementing some form of KYC step during onboarding proves highly advantageous for crypto exchanges and platforms for various reasons.
Reduces Fraud:
Knowing your customer protocol prevents all types of fraud, as you can learn more about your customers and monitor anyone who appears to be at high risk.
Builds Trust:
By implementing strong KYC, you can increase consumer confidence by showing your customers that you take their business seriously and follow the law.
Protects The Ecosystem:
KYC serves as a system to safeguard the financial ecosystem aiding in the prevention of money laundering, terrorist financing, and other fraudulent activities.