KYC stands for ‘Know Your Customer.’ It could also mean ‘Know Your Client’ depending on who you ask.
Basically, it’s the process in which a company or business ensures you are who you say you are. For example, have you ever gone to open a bank account only to be asked for your passport, driver’s license, or utility bill? This is part of what KYC is about.
When it comes to crypto, KYC is a means by which crypto exchanges and other crypto businesses know who their customers are. KYC is more common in banks, insurance providers, lenders, and other financial institutions.
This is because it’s actually a requirement for banks and other financial institutions to comply with KYC and anti-money laundering regulations.
KYC began in 1989. It was implemented to prevent tax evasion, fraud, money laundering, terrorism financing, and other financial crimes.
Does Crypto Need KYC?
Yes. As an upcoming financial exchange medium, cryptocurrency exchanges need to adhere to KYC regulations to become suitable for the mass market.
Some information types you may require to produce if you want to trade with a cryptocurrency exchange that is KYC-compliant include utility bills, bank statements, driver’s licenses, and passports.
Although KYC compliance is still relatively new in the crypto world, it is gaining popularity as more people come onto the market.
One of the main reasons why KYC compliance is important in the crypto world is that it prevents cryptocurrency exchanges from being used for illegal activities – intentionally or otherwise. This helps them avoid risk.
What Are Some KYC Requirements for Crypto?
Various cryptocurrency exchanges create their KYC requirements based on their understanding of the law. This is why you’ll find a cryptocurrency exchange with different KYC requirements from another within the same country, even though the laws are the same.
Some common KYC requirements include:
- A photo/scan of your passport, driver’s license, or other government-issued ID
- A photo of yourself with your ID
- Copy of your utility bill
- Full name
- Date of birth
- Country of residence or physical address
- Phone number or email address
One thing to note with these requirements above is that they are physical pieces of evidence. Therefore, watch out for scammers who ask you for information over the phone.
These KYC requirements are not something that you can give over a phone call.
Is KYC Safe for Customers?
Yes. As long as you ensure that the company or cryptocurrency exchange you’re doing business with has privacy and security policies that will protect your information.
Another safety measure to keep in mind is that you should provide your information directly to the crypto company you’re dealing with. Anyone calling you to say that they are contacting you on behalf of the cryptocurrency company you’re working with is probably lying.
Does Law Require KYC Compliance for Crypto?
Not exactly. Cryptocurrency exchanges fall within a gray area that allows them to get away with KYC non-compliance.
This is why you find many cryptocurrency exchanges not insisting on KYC requirements. However, if they also deal with fiat currency, you may need to meet these requirements.
This is because crypto exchanges that deal in legal tender are likely working with banks and other traditional financial institutions.
Banks, lenders, insurance providers, and other monetary organizations are required to comply with KYC requirements. Therefore, you’ll need to go through the KYC process if you’re dealing with such crypto exchanges.
Therefore, cryptocurrency exchanges that deal in legal tender enforce the KYC process.
Can You Buy Crypto Without KYC?
Yes. Not all cryptocurrency exchanges enforce KYC requirements. Actually, about a third of cryptocurrency exchanges have KYC compliance.
Also, you could consider peer-to-peer exchanges if you are really uncomfortable about sharing your information with a cryptocurrency exchange.
However, these peer-to-peer exchanges hold a significant amount of risk, and it’s easier for you to be scammed if you go this route.
Therefore, we encourage you to use safe KYC-compliant exchanges compared to peer-to-peer ones to avoid falling victim to criminal activity.
What Is the Future of KYC in Crypto?
It’s unclear how KYC compliance in the crypto world will change.
Nonetheless, we’ve seen a rise in KYC compliance with big players in cryptocurrency. This can be tied to the simple fact that cryptocurrency is fast becoming popular in the mass market, and more people want a more regulated crypto service.
It’s also worth noting that the Financial Action Task Force updated its guidelines in 2019, mandating countries to ensure that crypto-asset service providers were subject to adequate supervision to combat financial terrorism.
Crypto-to-Crypto Exchanges Vs. Crypto-to-Fiat Exchanges in Regards to KYC
A) Crypto-Crypto Exchanges
These exchanges are more relaxed when it comes to KYC requirements. This means that you can trade on these platforms without having to verify your identity.
However, this mostly applies when you’re dealing with smaller amounts. If you want to trade beyond a certain limit, you’ll need to go through the verification process for most of these exchanges.
B) Crypto-Fiat Exchanges
These crypto exchanges have some KYC compliance levels because they deal with fiat currency.
We mentioned above that these exchanges often deal with banks and other financial institutions with KYC requirements. Therefore, if you want to work with a crypto exchange that deals in legal tender, you’ll need to offer some verification.
KYC in crypto is a way in which cryptocurrency exchanges verify your identity. Although not all cryptocurrency exchanges have KYC requirements, those that deal in fiat currency do.
This is chiefly because they deal with banks and other financial institutions with KYC requirements. If you are really against offering up any personal information for access to cryptocurrency exchanges, you could always try peer-to-peer exchanges.
However, note that these crypto exchanges hold a significant amount of risk. It’s easier for you to be scammed within peer-to-peer exchanges than it is on cryptocurrency exchanges.
Another thing to note is that crypto-to-crypto exchanges have less KYC compliance than crypto-fiat exchanges. Therefore, work with crypto-crypto exchanges if you don’t have to use fiat currency and don’t want to deal with KYC compliance.