The crypto market is volatile, and this is no secret. But notably, this has kept people from investing in cryptocurrencies and generating significant returns. This increasing demand for cryptocurrencies has accelerated the growth of the crypto exchanges that need to navigate through many legal nuances to operate.
One of those unique nuances is the mandated cryptocurrency KYC becoming popular by the day. As a result, almost every reliable crypto exchange needs its traders to adhere to certain KYC norms to access their services.
However, most people still need to understand why crypto exchanges require KYC in the first place. So continue reading to find the correct answer to this question and other important information associated with crypto KYC.
What Does KYC Mean In Crypto?
KYC or Know Your Customer regulations are not new in finance. These norms have been around for decades to facilitate better identification of customers. These KYC norms mitigate identity theft and fraud by ensuring businesses have the correct customer data and enable adequate verification.
Most financial institutions ask for KYC when customers apply for loans, open new accounts, invest, or do other important deeds. These measures require users to furnish their identification, financial, and social security numbers. These data sets are then verified to ensure effective compliance.
Cryptocurrencies: The Good – The End
When it comes to cryptocurrencies, there are two different arguments. On the one hand, some crypto exchanges have agreed to these norms, while on the other hand, some exchanges fought back, arguing this contradicts the basic ethos of Blockchain technology. Certain crypto exchanges allow customers to trade without KYC but restrict certain privileges without KYC.
However, the pressure for regulation is mounting on crypto exchanges, especially with the recent developments in the industry. This has also left very few loopholes for crypto exchanges to navigate through the nuances of these regulations. The more mainstream a crypto exchange goes, KYC will become critical for the exchange to operate optimally.
How Does Crypto KYC Work?
In most cases, it is seen that crypto exchanges need to collect certain data information to ensure compliance with necessary regulations. So here are some steps to ensure effective KYC crypto exchange.
Step 1:
The crypto exchange will ask for your personal information, such as your name, date of birth, address, and identification proof. Following this, you will need to provide the exchange with all the relevant information to access their services.
Step 2:
The exchange will leverage the verification method offered by authorities to verify the authenticity of all your credentials. They will check if all the information matches the information available to the government.
Step 3:
The exchange will then evaluate your risk profile and determine if you have any criminal activity or money laundering risk with your profile.
Step 4:
Once the KYC crypto exchange has verified all your information, it will activate your trading account, enabling you to make the most of its services. However, if they encounter any discrepancies, you will be restricted from accessing the services on the platform.
Challenges Crypto Exchanges Face With KYC Norms
KYC crypto norms are not just limited to the United States, but these norms are prevalent across almost every country you can think of. This does not come as a surprise, given that there have been many cases where people benefitted from the unregulated nature of cryptocurrencies. There are numerous cases of money laundering and crypto thefts around the globe.
Most governments and centralized authorities from all over the globe have decided to devise practical KYC norms to address these issues. This includes many countries such as France, Switzerland, India, and list goes on. While this is important to address the security issues, it does present some challenges for crypto exchanges.
Things like facilitating effective data collection from customers, verifying them, and adhering to other KYC norms are not easy. This requires a lot of resources and means on the exchange’s part to facilitate effective compliance with KYC coins regulations.
Unfortunately, crypto exchanges have no better alternative unless they devise a more effective way to facilitate better KYC compliance.
Benefits Of Adhering To KYC Norms
The first question people tend to ask about KYC norms is why crypto exchanges require KYC. But there are many perks of adhering to KYC norms, no matter how challenging it is sometimes. So here are some perks of adhering to KYC norms.
- Better Customer Trust: With increasing competition in the market, crypto exchanges need to make efforts to stand out. Winning the trust of your customers with a KYC crypto wallet is one of the most effective ways to win over their trust. KYC ultimately helps promote the customer’s interest which is always rewarding for crypto exchanges.
- Minimal Risks Associated With Legalities: Another essential perk of adhering to KYC norms is minimized legal risks. This allows crypto exchanges to stay ahead of all the legal complications and avoid any potential legal disputes. This also helps boost conversion rates, simplify transactions and ensure better compliance.
- Better Reputation: People often ask which crypto exchange does not ask for KYC. Now, many such exchanges do not require KYC. But most of these crypto exchanges suffer from a blatant attack on their reputation in the market. Besides, most people will prefer using a platform that ensures thorough compliance.
- Minimal Risk Of Fraud/ Money Laundering; Another important benefit of adhering to KYC norms is reduced risk of fraud and money laundering. This is also the primary reason for putting KYC in the picture in the first place. So having KYC norms also means your exchange does not have to worry about fraud and money laundering to a great extent.
Final Thoughts
The crypto industry is growing at an unprecedented pace, attracting excellent and bad attention. KYC effectively deals with all the negative attention and facilitates a safe and secure future for cryptocurrencies. So next time you wonder why crypto sites ask for ID, make sure you refer to this information.
