Cryptocurrencies have become increasingly popular over the past couple of years, and more people have started to invest in them. Also, the more widespread adoption of these digital currencies as modes of payment has also attracted more investors.
While cryptocurrencies may be secured by the blockchain, the transactions in crypto are often anonymous and quick. Therefore, anonymity can give rise to misuse and criminal activity if left unregulated. So, global regulators now want crypto exchanges and other similar platforms that facilitate crypto transactions to include Know Your Customer (KYC) protocols to limit that anonymity.
Thus, here are 6 points that you must know about crypto KYC.
Crypto KYC Is a Method of Identity Verification
In the case of crypto exchanges, KYC is a method of identity verification. Therefore, these online platforms should have an accurate risk profile for each customer. These platforms will, thus, need to acquire personal information from users to build such profiles. Such information includes:
- Other corporation information that’s relevant
KYC Monitors Customer Activity
Another important factor of KYC is that it monitors customer activity, primarily transactions. The purpose of this process is to look for any signs of criminal activity among customers. Some signs may include unusual patterns with transactions and transactions that involve high-risk locations or customers.
KYC Is Used for Screening Customers
KYC also ensures that all customers are screened to determine if they have any international sanctions placed on them. In addition to that, they also screen politically exposed persons (PEP). People with such backgrounds are more likely to be involved in money laundering.
KYC Can Help Detect Presence in Adverse Media
KYC can help detect the presence of high-risk profiles in adverse media before the news reaches other official sources. It is, therefore, important that crypto exchanges screen customers’ activity and involvement in adverse media as part of the KYC processes.
KYC Is a Subject of Controversy in the Crypto Global Community
Even though KYC is a means to help prevent misuse of crypto assets for criminal activity, its inclusion in crypto exchanges and other similar platforms has not been welcomed by everyone. So far, it has been a subject of controversy because it slows down the transaction processes due to the additional due diligence.
In addition to that, some customers are a bit hesitant to provide their personal information on crypto exchanges. That said, the introduction and use of KYC in crypto exchanges can help protect customers and their investments in the long term.
KYC Can Help Improve Customer Trust
While there is some controversy regarding crypto KYC exchanges, all of the feedback has not been negative. By implementing KYC, crypto exchanges can also instil confidence in some customers, showcasing that they are taking all of the necessary measures to keep their customers’ assets as safe as possible.
This protective measure helps build customer trust, and it can be achieved if the crypto exchange is transparent about how they are protecting their customers’ assets.
Last Few Words
Cryptocurrencies have always been about deregulation, giving more power to the end-user instead of authorized entities. However, there’s a high risk of misuse of that, and it can certainly help to take precautions against that. So, while the introduction and adoption of KYC may create some hurdles for customers and crypto exchanges, it can help protect customers’ accounts and assets in the long term.
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