Over the years, the cryptocurrency industry has been evolving at a never-before rate. But as the number of investors increases, there exists an underlying risk of loss of funds due to a variety of reasons. This includes hacker attacks, phishing and scams. To ensure the complete security of funds, many crypto platforms have now made it compulsory for their users to complete their KYC verification before they invest. But how does KYC in crypto help the end-user?
What is Know Your Customer (KYC) in Crypto?
The crypto industry is decentralized, which is a primary factor why many people prefer trading on the blockchain. However, many crypto platforms deploy their own Know Your Customer (KYC) procedures. KYC is essential to reduce the risk of money laundering activities taking place. For the KYC process, crypto companies partner with firms that offer specialized security services.
These organisations collect customer details when the latter signs up, which may include government-issued ID cards, passports, or any other nationally or globally accepted identity cards. The government regulators ask financial institutions and crypto exchanges to implement KYC verification to comply with anti-money laundering (AML) regulations.
How is KYC in crypto making it secure for traders?
While the impact of illegal activities on the blockchain is low, still, about $2.8 billion was laundered through crypto transactions in 2019. With no centralized authority in place, crypto platforms are taking it upon themselves to verify that their users are genuine and will not indulge in illicit activities. Apart from this, there are other reasons why KYC is important.
While crypto to crypto transactions are secure and decentralized, crypto exchanges need to monitor fiat to crypto transfer to ensure no malicious activities take place. Moreover, there have been instances where people have used cryptocurrency transactions for tax evasion. With KYC, fiat transactions are monitored, and if any suspicious activity arises, it can be flagged to the relevant authorities.
Prevents Money Laundering
KYC in crypto is one of the first onboarding steps that ensures that financial institutions identify and monitor client activities that prevent them from carrying out illicit financial transactions. The FATF (Financial Action Task Force) organisation has been assisting governments worldwide to implement strict money laundering rules and AML and CTF (counter-terrorist financing) guidelines that all the member states and every country must abide by to stop illegal money transfers.
Protection of Assets
KYC verification helps crypto platforms protect client assets better. When KYC is implemented, platforms can offer an added layer of security by having information about all parties. Many platforms also offer funds reimbursement if all KYC documents are in place.
Promotes Safe Trading
It is advisable that users should only use platforms that indulge in KYC in crypto transactions. This helps create an ecosystem of total security. This is why KYC is becoming common, and every major crypto exchange around the world has started performing KYC to be compliant.
As the crypto space matures, KYC is becoming more and more essential. KYC in crypto is a positive development and allows crypto platforms to offer tremendous customer benefits. At Mudrex, we have always kept user security and experience at the forefront of our vision. This is why we ensure efficient KYC and AML compliance, to provide the best possible investment experience to our users.
1. Is KYC Mandatory for Crypto?
KYC or ‘Know Your Customer’ is an important factor while exchanging crypto on a centralized platform. Centralized crypto platforms are accountable to the government and need to keep an eye out for any suspicious transactions. However, it is not required on decentralized exchanges.
2. Can I Buy Cryptocurrency Without KYC?
KYC is mandatory while using a centralized crypto platform. Many centralized exchanges may allow you to buy a small amount of crypto without KYC. If you wish to purchase crypto anonymously, you can switch to decentralized crypto exchanges or P2P transactions.
3. When Did KYC Start in Crypto?
Soon after the concerns of illegal transactions using cryptocurrency were raised, many government authorities made it mandatory for crypto platforms to be KYC compliant. Later KYC was made compulsory for all geographies.