- KYC (Know Your Customer) is a process used by financial institutions to verify the identity of their clients and prevent financial crimes such as money laundering and terrorist financing.
- Digital exchanges require KYC to avoid doing business with individuals or organisations that may engage in illegal activities.
- KYC information may include a customer's full name, address, date of birth, government-issued identification number, and proof of address.
- KYC helps digital exchanges comply with laws and regulations, such as the Anti-Money Laundering (AML) and the Bank Secrecy Act (BSA).
Cryptocurrencies are changing the world of digital finance. Transactions between users are anonymous and instant because cryptocurrency transactions are secured on the blockchain. Due to this nature, crypto transactions provide good opportunities for criminals to evade conventional anti-money laundering and counter-terrorism financing.
Digital exchanges require KYC to comply with anti-money laundering regulations and prevent criminal opportunities. Before any user opens an account, they must go through a KYC process.
What is KYC and Its Purposes?
KYC and Its Purposes, photo by Freepik
KYC or also known as Know Your Customer is the first step in anti-money laundering and the financing of terrorism in the world of digital currency. This process helps financial institutions determine the risk level associated with a customer. When users join a digital exchange, KYC procedures automatically identify and verify a customer’s identity. Digital exchanges may refuse to open an account or halt a user’s account if the user fails to meet the minimum KYC requirements and/or make suspicious transactions.
What are the Importance and Main Benefits of KYC?
Main Benefits of KYC, photo by Pexels
To be mandated by the law, the Know Your Customer (KYC) process also helps digital exchanges in several ways, such as:
- It helps digital exchange form risk assessment by identifying the customer’s history and digital assets.
- Limits fraud that results from the hiding of identity and information.
- It makes digital exchanges more transparent, trustworthy, and less risky, especially for new users.
- Improves the platform's reliability, which can lead to higher profits by attracting more users who are confident in using the platform.
How Does a KYC Work - easy steps involved
How Does a KYC Work, photo by Pexels
Financial institutions take the extra step to ensure the security and integrity of transactions by starting the Know Your Customer (KYC) process. This process involves collecting information about the customer, such as their name and address, and supplementing it with publicly available information from open sources. This helps verify the customer's identity and provides a safe and secure transaction experience.
In practice, digital KYC compliance means that ‘traditional’ KYC practices need to adjust for the specific characteristics of digital exchanges face, which include the following measures:
- Submission of Documents for Identification
A user is required to submit identity documents for the verification of their identity and residence status. The submission process can be done electronically by uploading a photo of their identity card and making a selfie ID verification. This verification allows the digital exchange to automatically capture users' demographic information and streamline the onboarding process.
- Identity Verification
The verification process is an important step taken by digital exchanges to ensure the safety and security of the transactions. After customers have completed the submission process, the digital exchange verifies their information, including names, addresses, birth dates, and other relevant details. This enables the exchange to build accurate risk profiles and provide a smooth, secure customer experience.
- Customer Screening
For the next step, digital exchanges must screen their customers to ensure that they are not subject to international sanctions and have a higher risk of being involved in money laundering.
- Customer Monitoring
Digital exchanges will monitor their customer’s transactions on an ongoing basis, paying attention to any signs of criminal activities, including unusual transaction patterns involving high-risk customers and locations.
Can You Trade on Digital Exchange Without a KYC?
Trade without KYC, photo by Pexels
Most people believe that implementing KYC goes against the decentralised nature of cryptocurrency. They think that digital exchanges should not request users for any kind of personal information or documents. Furthermore, many people also believe that keeping their information private from the authorities is essential, especially in countries with oppressive regimes.
Not all digital exchanges allow you to trade without a KYC. However, It’s a mandatory requirement for most custodial wallets to comply with KYC practices, as they hold the private keys to a user’s wallet. It’s important to note that even though some digital exchanges don’t require KYC, users may still need to provide personal information when they want to withdraw their funds.
For those who value anonymity, decentralised exchanges offer the option to buy digital currencies without disclosing personal information. While these exchanges have security measures in place, it's important to note that there is still a risk of fraud. But, by choosing a regulated digital exchange platform and going through the Know Your Customer (KYC) process, you can enjoy the added security and protection of your personal information while still having the option to stay anonymous.
Digital Exchange Without KYC
Digital Exchange without KYC, photo by Pexels
The list of reliable, non-KYC digital exchanges is slimmer as government agencies worldwide crackdown on digital currencies. But some investors still hold privacy above all else and want to make their digital transactions and investments without disclosing personal information.
Digital exchanges that do not require KYC still provide the same security and reliability as regular exchanges. However, some non-KYC exchanges may limit the deposit and withdrawal amount. To summarise, here are some digital exchanges without KYC for 2023.
- PrimeXBT - Great access to different digital currencies
- ChangeNOW - Instant digital currencies swap
- Fixed Float - Automated digital currency processing
- Bisq - Secure and private digital exchange
You can use StarWALLET, a blockchain-based digital wallet that supports trading multiple digital currencies using the ERC 20 standard for an all-encompassing solution for your digital assets. This digital wallet can also monitor market prices in real-time, so you can easily make various decisions related to your digital assets.