Signing up for a cryptocurrency exchange is a much easier process today that it was in past years. The onboarding process for most major exchanges has become extremely customer friendly, and the availability of information and help from these platforms has also become much more readily available.
The slowest part of signing up for a crypto exchange is almost certainly identity verification, which is also referred to as know your customer (KYC). Providing identity documents, selfies, proof of residence, and other personal information is no small matter, which may lead you to wonder why exchanges require this identity verification in the first place.
In this guide, we’ll discuss what KYC is, why it’s important, and much more. Let’s jump in.
Know Your Customer (KYC)/ Identity Verification
Know Your Customer (KYC) is the process of a financial institution, whether traditional or cryptocurrency, verifying the identities of its clients. Identity verification is a data-driven process where companies ensure that their customers are who they say they are, meet the requirements to use their services, and don’t use their services for criminal activities.
Though there is an overall goal to identity verification, regulations vary depending on your jurisdiction, and platforms may collect different identity documents for one region compared to another. As regulation around digital assets improves, the process should become somewhat identical regardless of the platform.
How KYC Works
Generally, the way an identity verification process works is you have to provide personal information such as:
- Full name
- Date of birth
- Phone number and/or email address
- Physical address and/or country of residence
- Photo/scan of government issued ID
- Copy of utility bill
- Photo of yourself with your ID
- Selfie
Once you have provided the required information, which may be all or most of the above components, the exchange will verify your identity. Some exchanges have an automated system in place that can verify your identity right away, but others are done manually and can take days if not weeks to complete.
Why is KYC Important?
Know Your Customer is important because of Anti-Money Laundering (AML) standards and legislation at both global and national levels. As aforementioned, KYC doesn’t have a single definition, and different regions have different versions of AML legislation, leading to differing implementations.
The reason KYC is important and its overall objective is to prevent businesses both financial and otherwise from being used by bad actors. These could be criminal organizations or individuals using the platforms for money laundering, terrorist financing, or other illegal purposes. Implementing KYC allows businesses to know who they are dealing with and potentially allows them to reject applicants with questionable or shady backgrounds. Platforms can also more easily monitor client activities and manage risk.
Is Identity Verification Legally Required?
Yes, identity verification is mandatory for banks, lenders, insurance providers, and other financial and monetary companies of all sizes. This includes cryptocurrency platforms.
Any serious platform will have KYC processes in place in order to comply with their local regulations and in order to prevent any of the aforementioned criminal activity which can take place on crypto exchanges (and other financial platforms).
Is KYC Safe to Do?
Yes, KYC is safe to undergo as long as you’re dealing with a reputable company/exchange. Make sure the exchange you’re looking to sign up with is regulated in your jurisdiction and check out reviews before signing up to smaller, less well-known sites.
Are There Crypto Exchanges That Don’t Require Identity Verification?
Yes, there are some crypto exchanges that don’t require identity verification. However, while it may be easier to sign up for one of these platforms, there is likely no legal protection for using them if they didn’t require you to verify your identity. This means you need to proceed with a lot of caution when using a platform like that, or should maybe avoid it altogether.
Closing Thoughts
Identity verification is certainly the most painstaking process when it comes to signing up for a new cryptocurrency platform such as an exchange. However, it is extremely important in order to prevent bad actors from using these platforms to manipulate markets or do other illicit activities such as money laundering or terrorist financing.
The process for KYC has gotten much smoother over the past few years as well, making it a more manageable experience for new users.
