What is KYC in Cryptocurrency? Why Is it Important?

    What is KYC in Cryptocurrency

    If you are investing in cryptocurrencies, KYC is vital to ensure that your cryptocurrency trades are verified. KYC stands for Know-Your-Customer or Know-Your-Client and involves a process for verifying your identity. Not only for cryptocurrencies, but also KYC is mandatory for banks, insurance providers, lenders, and similar financial institutions. KYC helps to verify your identity along with the essential data required to process transactions on a crypto exchange or trading platform.

    Therefore, KYC is important to keep the platform free from malicious and criminal activities. In this article, we are going to talk about KYC, along with its importance, the standard KYC process, and much more.

    So, let’s get started.

    A Detailed Introduction to KYC

    KYC is a technique used to guarantee that the security measures of Anti-Money Laundering (AML) and Combating-Financing-of-Terrorism (CFT) are followed successfully for taking down frauds. AML employs the same measures as in KYC for preventing fraudulent transactions and money laundering. Currently, AML makes sure that cryptocurrency receives the same safety measures as it has become a widely used form of currency in the world.

    Cryptocurrency transactions make use of KYC and Know-Your-Transaction (KYT) processes. These processes help the relevant authorities to verify the individuals responsible for making certain crypto transactions. It will ensure that no one can get away with malicious and fraudulent activities. Today, every crypto exchange and trading platform uses KYC to verify your identity.

    KYC may include your personal information such as name, phone number, address, email address, etc., as well as your signature and photographs.

    However, people almost always confuse AML with KYC because of their relativity. But we are going to tell you how they are different from each other.

    AML Regulations: How Did it Start?

    AML is a global Anti-Money Laundering procedure that is a set of policies to prevent money laundering set by the U.S. The procedure is supported by the two legislative acts, the foundational Bank Secrecy Act in 1970 and Title III of the Patriot Act in 2001. Both of these acts help the United States to stop and resist money laundering and terrorism funding.

    The Money Laundering Control Act (1986) and the Anti-Drug Abuse Act (1988) were first introduced in the BSA financial institution. They are the ones that convinced other financial organizations to join the government in the AML regulations. AML regulations are the key to keeping track of transactions over $10,0000 that go out and spread throughout the USA.

    However, Title III of the USA Patriot Act implemented Know Your Customer (KYC) to help the financial institutions to process administrative works more conveniently. Hence, according to the BSA, KYC is a U.S. AML policy that is also known as the Customer Identification Program (CIP). Since the USA is the world’s largest and leading economic powerhouse, the KYC technique has been adopted worldwide.

    Today, almost every country around the globe uses KYC to verify customer identities. Apart from traditional financial institutions, KYC has also been implemented by crypto exchanges all over the world.

    AML vs KYC: How Do The Two Differ?

    Many people often use “AML” and “KYC” interchangeably. However, AML and KYC are not the same, but both approaches tend to eliminate money laundering. Anti-Money Laundering (AML) has a set of rules, strategies, and regulations that help financial organizations battle against money laundering. On the other hand, the Know-Your-Customer (KYC) is a method that proves the customers’ identities to financial institutions.

    AML is a bigger process, and KYC is just a part of it. According to the AML regulations, the companies will have to submit the risk reports extracted through the KYC process before accepting the customers. If KYC finds any suspicious activities, the organizations are obliged to report those behaviors to the Anti-Money Laundering (AML) authorities. If failed to cater to the AML regulations, fines and illegal prosecution may occur.

    Do Every Financial Institution Require KYC?

    In today’s financial world, KYC is important for all government-regulated institutions. They create different KYC programs to build trust among customers and eliminate customers who do not follow AML policies. The government suggests every financial institution build its own KYC program as well as internal policies that would help them prevent any financial fraud risk that they may encounter.

    That’s why they use various types of KYC requirements to verify and validate user information and identities. The KYC requirements include passports, driving licenses, utility bills, etc.

    KYC in cryptocurrency works in the same way. Every cryptocurrency medium must follow the KYC rules. Since you are interested in validating your information through KYC, you must learn its importance and procedure.

    Importance of the KYC Process

    KYC is a part of the anti-money laundering (AML) that has been around since 1989. KYC is performed both globally and nationally by supporting the guidance of the Financial Action Task Force. KYC does not have a universal rule or definition that is followed by every country.

    Different countries from all around the world have different rules regarding the KYC process. Though all of those rules tend to prevent money laundering and illegal activities in financial/non-financial businesses. Money laundering is referred to as money that is being intentionally and unintentionally used for criminal purposes.

    But the KYC rules can help businesses to develop a proper understanding of their customers’ financial intentions and dealings. If an organization finds anything suspicious about the client or customer, they are responsible for rejecting the application. The KYC in the cryptocurrency world is put in place to make sure that traders do not use cryptos for funding criminal activities. Overall, KYC is really important to prevent illegal transactions.

    What are the Objectives of KYC?

    We have already discussed the purpose of creating KYC programs in various banks and cryptocurrency exchanges. Mainly, it is for preventing customers with illicit financial behavior and intentions. However, apart from that, KYC helps organizations to understand their clients better. Once the bank learns about the customers, they can easily determine the expectations and offer the best investment options to customers. When conducting KYC, a financial institution considers two key elements, facts, and behaviors:


    Facts are the information of the customers, the ones that have been provided by the customers themselves. KYC checks if the data are true and accurate and if it can justify the behavior of the customer.


    After the KYC facts are proven to be accurate, the same organization can start to focus on the customer’s behavior. This helps them determine if the customer information is in line with the rules and matches with the previously stated facts. If the behavior does not justify the facts, then the same will be reported to the authorities.

    How is KYC Policy Built?

    Organizations that have to implement KYC, need to consider 4 core pillars that are as follows:

    • Customer Acceptance Policy
    • Customer Identification Procedures
    • Monitoring of Transactions
    • Risk Management

    KYC investigations will involve the following parts according to the above core pillars:

    • The program includes gathering and analyzing personally identifiable information (PII), or CIP (Customer Identification Program).
    • Screening the PII that involves the real name, birth date, address, and similar details of the customer. It will be done against the global AML/CFT or Politically Exposed Person (PEP) lists and will oppose public information.
    • Determining the risk of customer involvement in money laundering or terrorism funding, or any other behavior that is against the rules.
    • The process also includes creating and accessing a client profile that showcases their financial history.

    What Types of KYC Processes are There in Exchange Platforms?

    Most online crypto exchange platforms let the customers create an account without performing the entire KYC process. They use a tiered level system where you will be required to enter certain personal information to deposit or withdraw a large number of crypto coins. This is applicable because the exchanges control the amount of crypto that can be transacted through their platform.

    However, some exchanges make the KYC process optional for the users who are only transacting a small amount of crypto. Though, some exchanges still require their users to complete at least some types of KYC protocol to prove their intention for involving in crypto transactions. Have a look at the three types of KYC processes implemented by crypto exchange platforms:

    • No KYC – No KYC helps you get away with the process under one condition; you can’t withdraw or deposit money. However, you can still make an account without completing your KYC.
    • Basic KYC – Basic KYC requires you to upload a photograph of yours, and they will set a low and fixed deposit or withdrawal limit.
    • Full KYC – You must complete the full KYC verification process if you want to deposit and withdraw a significant amount of money or cryptos.

    What Are the Verification Requirements for KYC?

    As mentioned above, KYC requirements and processes vary from one crypto exchange to another. Some platforms ask for very basic information while others ask for your government-issued I.D. and will take several days to complete the KYC process. The requirements of the KYC verification can also differ based on the cryptocurrency law of a particular region.

    However, the following are the most common KYC requirements that you need to know:

    • Full name
    • Scanned copy of government-issued I.D
    • Phone number and/or email address
    • Date of birth
    • Copy of utility bill
    • Physical address and/or country of residence
    • A photograph

    Is KYC Safe for the Customers?

    When you are verifying your transactions through the KYC process, you should be certain that the company is taking the right measures to ensure the safety of its customers. A company or platform uses the KYC process to keep the platform free from fraudulent behavior. However, always make sure that you are sharing your information with a trusted organization.

    Hackers can steal your information without your permission and use it for performing malicious activities. If someone randomly calls you to complete a KYC, ignore it.

    Does Every Exchange Require KYC?

    Not every exchange platform requires KYC. If you sign up with Binance, Kraken, Shapeshift, and Changelly, you can access many of their features without completing your KYC. There are many third-party exchange platforms that do not require the customers to complete any KYC process.

    Although it takes time and struggles at some points, KYC can help you keep your account safe. There will be fewer chances of an attack on your cryptocurrency wallet or if the platform implements a KYC process to verify your identity.


    Overall, KYC has a future both in the traditional financial industry and cryptocurrency industry. With time, the government will be able to eliminate whatever drawbacks it has and ensure better security of the users and their transactions. Since most of the trading and exchange platforms require you to complete KYC, you cannot sell or buy cryptocurrencies without completing the process.