The cryptocurrency and digital asset world is growing at an increasingly steady pace. More and more people are hearing about the massive financial benefits and personal wealth growth that you can experience when investing in the right types of crypto tokens. However, some people are still sceptical about getting into the crypto industry. This is due to the unregulated nature of the market and concerns surrounding the security of investments. Concerns about the reliability of the people within the online investment space are prevalent too.
As the cryptocurrency industry moves more towards future legal regulation in many countries around the world, people wonder how their money will be kept safe. They also wonder how they will be protected from scams, should they decide to invest. There are many different security measures that are currently being implemented. Both by crypto exchanges and coins operating on the blockchain itself.
One of the most popular safety measures followed by many of those operating in the crypto sphere is the “know your customer” (KYC) measure.
But what is KYC? And how does KYC crypto work?
Let’s find out!
The process of knowing your customer is a security measure. The traditional finance industry has followed this process for years. It’s also followed in marketing and trades. Now, it’s in the present-day cryptocurrency industry.
But what does it mean to “know your customer”? And how does KYC keep buyers, sellers, and traders safe. Especially when pursuing different types of coins to buy on a multitude of different crypto exchange sites?
KYC is a process whereby the identity of all customers buying or selling products, in this case, cryptocurrency or another type of digital asset, is verified. This verification process includes doing financial due diligence to understand the means of the customer wanting to make a particular trade. This due diligence also involves doing research into where the customers’ money comes from. Along with how they’ve made their personal fortune.
In essence, the process of KYC helps brokers, buyers, sellers, and traders understand whom they are dealing with and whether they’re reputable. It also identifies whether they have the funds to complete a promised deal, and whether or not they are trying to pull off a scam.
KYC crypto is a process of protecting all involved parties in a venture that takes place in the online world. This world is a place where scamming and stealing is made easier as identities are more frequently hidden.
In the crypto world, brokers and cryptocurrency exchange platforms generally assume the responsibility of doing KYC. For the most part, new sign-ups and users need to answer a series of personal questions. The crypto exchange can then verify that a user is a real person (and not a bot), and that their financial situation is legitimate. Additionally, it verifies that they’re not coming into the field with fake funds, and ensures they have no history of scamming.
Many of the KYC questionnaires include the following questions for new users and sign-ups:
As we mentioned above, cryptocurrency is mostly an unregulated market in most of the world. But that is slowly changing. Depending on the regulations of the country where the new user or sign-up comes from or the country where the cryptocurrency exchange platform is based, these questions may differ to include more and exclude more.
Because the market is still undergoing a process of legal regulation, the questions posed are mostly decided on by the brokers and exchange platforms themselves.
It might sound a bit redundant for cryptocurrency exchanges to ask for identification documents from entities that they have no control over. Surely this means that people who are signing up to crypto exchange platforms with the intent of making scam trades can easily and quickly forge an identity document. Then upload it when signing up for a new account?
Well, no, not quite.
Many cryptocurrency exchange platforms on the market right now, especially those that are growing at a rapid pace or are already popular amongst traders, take their security very seriously. Often, they put extra security measures into place. This aims to ensure that everyone who signs up is in fact whom they claim to be.
Many exchange platforms will have privately set rules when it comes to uploading identification documents. Including the need for new sign-ups to post a selfie with the identification documents they decide to upload.
The bank documents that many of these platforms require are also forms of identity verification as they can be rehashed and rechecked by security teams should any suspicions arise. One of the most important bank documents that many of these platforms ask for includes statements that date back a few months (or even longer). Long-term bank records prove the use of linked accounts of people who intend to make trades.
But all of these requirements, are, for the most part, privately set standards and rules by the crypto exchange platforms themselves. Is KYC required? And if so, what are the KYC standards for the cryptocurrency industry? Do these platforms have to instil KYC processes into the sign-up routine, or is it completely by choice?
Since the market is still largely unregulated, the implementation of KYC processes is largely dependent on the country of origin for the crypto exchange platform. However, should one of these platforms choose to implement KYC into their sign-up process, there are a few standards that it should meet.
These standards should be met by KYC processes should a crypto exchange platform require it of their users:
So, now we understand what the KYC process seeks to understand in terms of the standards set for it by experts in the marketplace. But how does this benefit the crypto world as a whole? And, is KYC really that important in a decentralized and de-regulated marketplace?
Let’s take a look at the benefits of KYC.
KYC processes benefit the users by keeping them safe and allowing them to trade only with other verified users. But this process can also greatly help the exchange platform comply with the slow building structure of regulations surrounding the cryptocurrency world.
The major problem that still faces the cryptocurrency world and many of its users right now is the fact that many transactions can take place without any form of transparency within the exchange. This is what KYC seeks to completely cut out from the industry.
Many people want to sign up for an exchange platform and take on the challenge of growing their personal wealth through cryptocurrency and Bitcoin investments. However, many of them are still afraid of scams and untrustworthy traders within the space.
KYC helps exchange platforms create a user base of completely verified and identifiable users. It helps to explain their rationale for transacting in digital assets. This makes it easier for the exchange platform to keep its user base safe and clean. Plus, it allows customers to trade freely. In turn, it alleviates the worry of getting scammed by any potential online data or money thieves.
Another large problem facing the growth of cryptocurrency as a true form of decentralized personal finance is the fact that the market is still extremely volatile. This is, in part due to customers coming in and leaving pretty soon after realizing safety concerns.
KYC helps stabilize the marketplace by making all of the role players known to one another. It helps create a sense of safety and security amongst its user base. And it also deters those who come in for the reason of creating multi-million dollar scams within the marketplace.
As more and more identifiable role players enter the cryptocurrency investment market, experts hope to see market stabilization and a lower risk of volatility within the investments themselves.
There’s no denying it. Running a cryptocurrency exchange platform in the current landscape of the industry is rather risky. Yes, there are many benefits that arise by getting into the game early, while de-regulation is still rife. However, there is also a huge risk for those that own the brokerages to come under serious legal scrutiny as the law continues to evolve.
It is most prudent for anyone undertaking roles in providing platforms. But also for those who are on the ground making crypto trades to comply with as many security measures as they can. Even before a hard and fast legal framework is developed for this industry.
On the whole, anyone involved in the cryptocurrency world during these early stages of unregulated trades and investments should want to keep customers safe to the best of their ability. Once laws come into play (whether or not they are made retroactive) these role-players must show that user and customer safety was and is a main and actionable priority.
The implementation of KYC processes is one way that they can do this.
If one thing remains true, many people want to get into cryptocurrency investing and remain anonymous for reasons in good faith. Perhaps you don’t want the rest of the crypto marketplace to know the size of your investments. Or the rationale behind your transactions. Or simply your real-life identity. That is the beauty of the decentralized nature of the cryptocurrency world. Many people want to remain anonymous without threatening to perpetuate money laundering or scams.
But is there a way to trade while avoiding KYC standards?
Well, yes. Many smaller exchanges that pride themselves on upholding the true meaning of a decentralized finance institution look to allow trades and sign-ups without adhering to any KYC standards. There are major risks involved in trading without KYC measures. But be on the lookout for these kinds of exchanges if you’d like to trade in a truly decentralized fashion.
KYC is a fantastic security and transparency measure that has received widespread implementation in an industry that truly needs it. This crypto guide to KYC has hopefully given you all the requisite information you need to understand that on most crypto exchange platforms your identity and the identity of those trading around you is required as a safety mechanism.
KYC will keep you and those around you in the investment sphere safe.
