Crypto Intermediate

Crypto KYC: What does it mean, and why is it important?

Crypto KYC

Key Takeaways

  • The anonymous nature of crypto transactions makes them vulnerable to fraudsters.
  • Know Your Customer (KYC) procedure attempts to improve compliance by authenticating a customer’s identity.
  • KYC boosts transparency and trust, lowers the risk of financial crimes, and improves the stability of the crypto marketplace.

Cryptocurrencies have soared in popularity in recent years. Moreover, as cryptos are protected cryptographically on their respective blockchains, transactions between users remain largely anonymous and happen in real time. Unfortunately, this makes crypto transactions vulnerable to criminals attempting to bypass traditional anti-money laundering (AML) restrictions.

Thankfully, global authorities have geared up to this challenge and devised ways to strengthen security to protect investors. In 2019, for instance, the US regulators, the Securities and Exchange Commission (SEC), The Financial Crimes Enforcement Network (FinCEN), and The Commodity Futures Trading Commission (CFTC) designated cryptocurrency marketplaces as money service organizations (MSBs). Accordingly, the companies complied with the Know Your Customer (KYC) and anti-money laundering (AML) regulations under the Bank Secrecy Act of 1970.

In India, though, crypto assets are unregulated. Yet, all reputed exchanges in the country diligently follow accepted norms to guard against attempts to route illegal money through crypto investments. Accordingly, every consumer who wishes to open an account on a crypto exchange has to undergo a KYC procedure. The exchange verifies your identity to ascertain that you are who you say you are while undertaking the KYC procedure.

How does the crypto KYC procedure work?

KYC in crypto attempts to avoid illicit actions such as financial fraud, terrorist funding, and tax evasion by authenticating a customer’s identity. Some exchanges might allow customers to open an account before completing the crypto KYC procedure. However, these accounts will not become fully operational until the verification process is completed. Many exchanges, for instance, will not permit a consumer to acquire Bitcoin or withdraw cash until the verification of their identity. Some others might impose a deposit limit.

KYC procedures can vary across cryptocurrency exchanges. However, in general, you will need to furnish the following information to the crypto exchange to start the KYC process:

  • Full name
  • Date of birth
  • Home address

Once you provide this basic information, the cryptocurrency exchange will ask you to upload a photo of a legitimate government-issued identity document such as a driving license or passport. This data will subsequently be used to verify your identity. After authenticating your identity, the exchange will provide you access to its offerings.

While most exchanges would allow you to do transactions once you satisfy these requirements, some would insist that you undergo a more stringent verification process. In some cases, you have to provide a selfie and furnish additional information. According to Financial Action Task Force (FATF) guidelines, cryptocurrency exchanges should follow a threat-based approach to crypto KYC compliance. In other words, low-risk clients are usually subject to easier procedures, while high-risk individuals must meet rigorous crypto KYC compliance standards.

Can you buy crypto without KYC?

KYC is a mandatory requirement on almost all centralized cryptocurrency exchanges. Customers may, however, still acquire cryptocurrency without going through a crypto KYC procedure. These approaches, however, are significantly more difficult and risky.

For instance, buyers who desire complete anonymity, can acquire cryptocurrencies through decentralized exchanges. Although decentralized exchanges have security mechanisms to avoid fraud, consumers are likely to get duped. Furthermore, decentralized exchanges are less user-friendly than high-quality centralized exchanges, and users will have to shell out higher transaction charges.

While purchasers can remain anonymous, it would make sense for genuine individuals to undergo the crypto KYC procedure with an authorized exchange. And this comes with the added advantage of completing the procedure quickly.

Why is KYC required for crypto transactions?

KYC is the cornerstone of AML compliance rules. These requirements necessitate that financial organizations recognize their consumers and comprehend their interactions with them.

KYC is vital in financial transactions as criminals exploit a number of methods to avoid money laundering restrictions. Fortunately, a cryptocurrency exchange can readily identify and prevent financial crimes by creating a detailed and precise risk profile for each customer.

Boosts transparency and trust

Verifying a user’s identity can help boost transparency and consumer trust. After all, if a consumer believes that your crypto exchange is taking proactive and preventive actions to safeguard their accounts, they are more likely to keep using your service.

Lowers the risk of financial crimes

Since 2016, there has been a spurt in crypto scams. According to Forbes, there were 80,000 occurrences of crypto fraud in the United States alone in 2020. According to another study, illicit crypto transactions amounted to roughly $14 billion in 2021, up 79% from $7.8 billion in 2020.

The alarming numbers demonstrate why authorities insist that bitcoin exchanges establish stringent verification processes and KYC procedures. By employing these steps, crypto exchanges may not only lower the risk of financial crimes, but can also reduce misleading activity and improve their market position.

Improves stability

The crypto market is inherently erratic. Usually, unauthorized, anonymous transactions lead to unpredictability. The marketplace will become more stable if cryptocurrency exchanges employ KYC and strict client verification processes. This will, in turn, raise the market’s worth and draw more consumers to the market.

KYC at CoinSwitch

CoinSwitch, one of the leading cryptocurrency exchanges in India, believes in making crypto investments simple and secure. Our AML and KYC verification processes help avoid fraud and are hassle-free. Besides, our crypto solution incorporates a decision-making engine that swiftly validates a verification. Furthermore, our user flow guide handholds customers through the verification process. Thankfully, the credentials of about 95% of customers are validated on their first attempt, with a typical verification lasting 5 minutes or less.

Do you want to learn more about your crypto KYC compliance requirements? Speak to one of our compliance specialists today!


What is Crypto KYC and why is it necessary for trading on CoinSwitch?

Crypto KYC (Know Your Customer) verifies user identities. CoinSwitch requires it for security compliance and preventing fraud and money laundering.

What documents are required for completing the Crypto KYC process?

Typically, government-issued ID (passport, driver’s license), proof of address (utility bill), and sometimes a selfie with the documents.

Is my personal information safe during the KYC verification?

Yes, reputable platforms implement security measures to protect personal data and comply with privacy laws for safe KYC verification.

Can I trade without completing the Crypto KYC process?

It depends on the exchange’s policies. Some platforms allow limited trading without KYC, but full access usually requires completing the process.

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