Cryptocurrencies were positioned as an absolutely anonymous and safe environment. At first, this was completely true, but when digital assets began to rise in price and large investors became interested in a new area, the situation changed radically. The further, the more centralized cryptocurrency exchanges introduce requirements for mandatory verification of clients. Places that are still possible to anonymously exchange a large amount of BTC to BNB are becoming less and less.
What Does The Kyc Procedure Look Like?
Know Your Customer is a procedure that obliges all financial organizations and institutions to identify and verify the identity of each client. Moreover, this must be done even before the client can carry out any financial transactions at all.
Unpleasant, but necessary, because in practice, anonymity and lack of control turn into many temptations and impunity for crimes. And wherever it goes, if it were a single gang of cinematic bandits who sit on an impregnable island and occasionally make robbery raids.
In reality, even the most dangerous criminal outwardly does not differ in any way from a law-abiding citizen. It is important for reputable companies to avoid even the theoretical possibility of cooperation with terrorists, scammers and other dark personalities. KYC is one of the measures to protect against the risks of such cooperation.
Since crypto exchanges operate in the legal field and value their reputation, they also agree to accept the general rules of the game. Crypto exchanges themselves determine the stages of verification and the amount of information about the user. As a rule, it is mandatory to request:
- Passport data.
- Residence address.
- Phone number.
In addition, the system will ask for confirmation of the phone number or e-mail. Some platforms ask for selfies with documents and utility bills.
The larger the amount that you plan to deposit on the exchange, the more information about you will be required. Usually there are several standard KYC levels on exchanges and in most cases it is enough for clients to limit themselves to the basic or maximum second level.
Many users are convinced that verification violates one of the key principles of the crypto world – anonymity. However, this is a forced measure, which is needed as an indicator of the security of cooperation with the platform.
Anti Money Laundering
KYC is only part of a wider range of anti-crime AML measures. In the full version, the name of this set of measures sounds even more intimidating: “Combating money laundering, countering the financing of terrorism and financing the creation of weapons of mass destruction.”
And it would seem, but what does crypto-exchange have to do with it? Moreover, the information in the blockchain is available for viewing by everyone? Yes, the amounts of transactions and the addresses of their participants are visible in the blockchain. It is quite possible to trace the movements of each coin, but the names of its former owners and the purpose of the transfers cannot be so easily identified.
And any transaction can theoretically be associated with hacker attacks, extortion or something worse. When buying crypto on an unregulated platform, the buyer runs the risk of buying so-called “dirty” coins, for example, stolen or received for the sale of a large consignment of drugs. Are you sure you need such coins?
AML policy is precisely aimed at preventing the movement of illegally mined coins. In addition to KYC, the set of measures includes:
- Verification of bank cards.
- Transaction monitoring.
- Risk assessment.
- Crypto compliance etc.
Actually, reputable exchangers are also inclined to the need for direct or indirect compliance with AML / KYC. The interaction of the Letsexchange platform with verified exchanges guarantees that after visiting https://letsexchange.io/exchange/eth-to-sol you will receive only legal coins.
Pros And Cons Of AML/KYC
Every coin has two sides, so AML/KYC is certainly no exception. Consider them from the side of both the exchange and the client
For the exchange:
- The platform is sure that there are no terrorists, drug dealers and other undesirable persons among its clients.
- Only “clean” coins enter the exchange.
- The platform is legally compliant, trusted and able to work with clients from different countries.
- The platform can work with fiat currencies and directly cooperate with Visa and Mastercard.
- The platform incurs additional costs for the purchase of software, hiring and training of specialists, ensuring the security of data storage.
- Regularly undergoes audits.
Security and great opportunities inevitably come at a price. But still it is much cheaper than paying for carelessness. And not only money.
- Maximum trading security, all funds on the exchange are legal.
- Minimal costs when performing crypto-fiat operations.
- Guaranteed damages in case of hacking or technical failures on the platform.
- Protection against unauthorized use of a bank card.
- Additional time spent on data validation.
- Discomfort from the need to disclose personal data.
We live in an imperfect world, where the law-abidingness of a single person does not guarantee his protection from illegal actions by other people. It is also in no way obvious to others. AML / KYC are aimed at increasing security in the world of finance and are really needed, although they create some inconvenience.
In conclusion, the implementation of Know Your Customer (KYC) and Anti-Money Laundering (AML) measures in the cryptocurrency space is undeniably essential for fostering a secure, transparent, and trustworthy ecosystem. While cryptocurrencies have revolutionized the way we transact and invest, they have also attracted the attention of bad actors seeking to exploit the anonymity they offer for illicit purposes. KYC/AML regulations serve as a robust line of defense against these nefarious activities.
By verifying the identities of users and monitoring their transactions, crypto platforms can prevent money laundering, terrorist financing, and other financial crimes. Moreover, KYC/AML measures help protect honest investors and users from potential scams and fraud, thereby enhancing confidence in the crypto market.
While some argue that KYC/AML may compromise privacy and decentralization, striking the right balance between safeguarding individual rights and promoting a secure environment is critical. Collaborative efforts between regulators, crypto companies, and users can lead to effective compliance solutions that preserve privacy while still upholding the integrity of the crypto space.
Furthermore, the integration of KYC/AML procedures is pivotal in fostering mainstream adoption of cryptocurrencies. As governments and institutions seek ways to regulate the digital asset landscape, adherence to these compliance standards will help build credibility and legitimacy, encouraging more individuals and businesses to embrace the technology.
In essence, KYC/AML serves as a necessary safeguard, ensuring the long-term sustainability and growth of the crypto industry. By actively combating financial crimes and promoting a culture of responsibility and trust, these measures play a vital role in enabling cryptocurrencies to fulfill their potential as a transformative force in the global economy. Embracing KYC/AML is not only a legal and ethical obligation but also a strategic move towards building a robust, inclusive, and prosperous future for the world of digital finance.