KYC: Why is it Important in the Cryptoverse?

As we all know, before beginning an encrypted transaction, you must first verify your identity. When you create an account on a proper centralized crypto exchange, you will usually be asked to complete the “know-your-customer” (KYC) process. This is a standard authentication process required by mainstream cryptocurrency exchanges for those wishing to trade cryptocurrencies. The sooner KYC is completed, the sooner cryptocurrency purchases and withdrawals can be made.

For example, for Binance, they have a new hire for the position of Director of KYC Compliance so to ensure the highest standards of regulatory compliance. Binance mentioned that all new users of the company are required to complete Intermediate Verification to access Binance products and service offerings, including cryptocurrency deposits, trades and withdrawals. Their CEO, Zhao Changpeng also emphasized in a tweet that “Mandatory KYC for ALL services @Binance.”

This article will explain what KYC is, how the process works, and alternative methods for purchasing cryptocurrency.

What is KYC?

KYC is an abbreviation for “know-your-customer,” which verifies the customer’s identity. This is most common among financial institutions and financial service providers, such as banks, stockbrokers, and, more recently, cryptocurrency exchanges. KYC is essential to confirm customers’ identities and prevent illegal activities such as money laundering, terrorism financing, and tax evasion. If a cryptocurrency exchange does not perform KYC, it may be held liable for such illegal activities by industry regulators.

Under normal circumstances, investors can open a trading account without completing the KYC process; however, the investor’s account will be restricted until the identity verification is completed. The most likely limitation is that the exchange does not allow investors to withdraw or buy cryptocurrency at all or that the amount you can deposit is limited.

How KYC works

KYC is handled differently by each cryptocurrency exchange. Typically requires the following information during the KYC process: name, date of birth, certificate type, number and photo, biometric verification, and so on. In most cases, valid government-issued ID documents, such as ID cards, passports, or driving licenses, are also required.

The exchange will use biometric verification to verify the investor’s identity after the investor provides the information and photos required by the exchange and completes the biometric verification. Therefore, reviews may take some time. In addition, each exchange has a different review time, depending on the company and how popular it is.

In some cases, the exchange will require additional investor verification. In this case, the investor may be required to show proof of his or her physical address or take a selfie.

“The additional verification protects all parties. It is a standard requirement globally within the investment industry. It’s a process from industry regulatory bodies to protect all stakeholders and this should be implemented in the crypto industry. This is a way to keep our crypto industry clean and accountable.” Anndy Lian, Chairman, BigONE Exchange in Asia and Chief Digital Advisor to Mongolia commented too.

#Can I buy cryptocurrency without KYC?

You can buy cryptocurrency without KYC, but it is more complicated and risky than using a KYC-compliant exchange. Decentralized exchanges and Bitcoin ATMs are the most common ways to purchase cryptocurrency without needing to provide proof of identity.

A decentralized exchange does not have a centralized organization and management. Peer-to-peer (P2P) trading and automatic market maker (AMM) trading are the two main types of decentralized crypto transactions.

Peer-to-peer trading (P2P) offers buyers and sellers a platform for issuing cryptocurrency price quotes, which function similarly to a list of cryptocurrencies classified ads. However, even though these platforms have security measures to prevent fraud, buyers and sellers may still be duped and lose money. As a result, peer-to-peer transactions are generally riskier than centralized cryptocurrency exchanges.

You can also trade paired cryptocurrencies using automated market makers (AMM). They set transaction prices using smart contracts and provide transactions using a liquidity pool, a collection of encrypted funds contributed by users. Although AMM does not require identity verification, you must prepare in advance an encrypted wallet with funds ahead of time to conduct transactions. On these platforms, you cannot buy cryptocurrencies with cash. Many users will choose to buy cryptocurrency on a centralized exchange first, then transfer it to a crypto wallet and connect it to AMM to gain access to a broader selection of cryptocurrencies. Clearly, your goal of investing in cryptocurrency is to make money. However, when the cryptocurrency is transferred between accounts, you risk paying a significant portion of the cryptocurrency as a handling fee.

In addition to the two methods mentioned above, Bitcoin ATMs can be found all over the world.

Despite their name, these ATMs do not always accept Bitcoin. Other types of cryptocurrencies are also available at some ATMs. Although ATMs are frequently expensive than crypto exchanges, these ATMs allow you to purchase cryptocurrency in cash at a convenient location. Bear in mind that crypto ATM providers such as are still subject to regulations. For example, Bitcoin of America based in the US is registered as a money services business with the United States Department of Treasury, and it operates in compliance with all AML-regulations and relevant laws.

#The crucial part of crypto trading

KYC is a requirement that almost all centralized cryptocurrency exchanges impose. However, buyers who prefer to remain anonymous can use decentralized exchanges or Bitcoin ATMs.

However, these options are frequently less convenient and faster than purchasing on high-quality centralized exchanges and decentralized exchanges and Bitcoin ATMs may also charge you higher transaction fees. Therefore, the best option remains to select a centralized exchange and complete their KYC process. Fortunately, these procedures are straightforward with help from customer support every step in the process. Following completion of KYC, you will be able to buy and trade cryptocurrencies freely.

We need to do our part to ensure the industry is proper. On our end, we have crypto exchanges coming to us for public relations and marketing-related services. As long as they are grey, we do not accept them. We do not want to be marketing for the wrong companies.

Original Source: https://hackernoon.com/kyc-why-is-it-important-in-the-cryptoverse

Anndy Lian is an early blockchain adopter and experienced serial blockchain entrepreneur. He is also the Book Author of “Blockchain Revolution 2030”