What Is KYC and Why Does It Matter For Crypto Exchanges?

Humans are social animals, and we love to know about each other. Therefore, your financial institutions want to know more about you as the end of the day they are humans too, right? Well, if this is what you think about new crypto KYC regulations, then you need to read this article till the end. 

KYC is a method that leads cryptocurrencies towards achieving a legitimate status while also reducing the associated risks.

In the article ahead, we will explore the details of the KYC procedure in cryptocurrency. We will also try to understand why governments are keen to regulate centralized exchanges using this method. 

What is KYC?

KYC or Know Your Customer is an identification method used by an institution to confirm the identity of the customers using their services. Working in the same way in crypto, KYC keeps track of people trading on an exchange. Centralized exchanges were compelled to make KYC mandatory for all of their customers and share the relevant information if asked by the probe authorities.

KYC process is complimentary to anti-money laundering directives and provides safer transactions for the users of the platform. KYC facilitates better control of authorities on the movement of assets while curbing the fraudulent use of crypto.

A transparent operation of the crypto assets allows the probing authorities to take down terror funding, money laundering, and organized criminal activities. KYC ensures crypto exchanges do not become a safe haven for the operation of criminalized trade activities such as illegal drug trafficking and arms dealing.

Benefits of Crypto KYC

There are hundreds of benefits of having a proper KYC for an organization. A well-functioning KYC mechanism could be the difference between a prospering and a censored business. Here is a list of some benefits that the KYC procedure offers. 

1. KYC provides the business with a compiled database of its users

2. KYC is a brilliant method to regulate and be auditable for the government

3. These methods encourage the development of trust between the customers and the company

4. KYC procedures ensure a hassle-free mechanism for tax deductions on the source. With this, businesses do not need to reach out to their customers for additional details

5. It acts as a powerful barrier against terror funding, money laundering, drug trafficking, and arms dealing

Things to Keep in Mind Before Doing Your KYC

KYC is not only a single-ended procedure but also requires the right precaution from the customer’s end to ensure their safety. Here are some of the common things which you should keep in mind while doing your KYC.

Know Your Company

KYC stands not only for Know Your Customers but also for knowing your company. If you do not know the vendor for which you are asked to complete a KYC, then you should learn about it more. Knowing about the company can assist you in assessing the potential threat that could be associated with it.

Make sure that you are doing your KYC only for a reputed company and that you understand their mode of functioning. Ensuring their credentials and licenses could also be a safety measure for you to safeguard yourself from identity theft. 

Beware of Phishing Attacks

Phishing is one of the most prevalent forms of cyber attacks. Even with the best of securities available on our devices, we can become a target of a simple phishing attack. Not being aware of it makes us more susceptible to such attacks.  

In phishing attacks, the target is lured to a replica of any credible website and asked to share the information on its login page. Using this method, the private information of the users is stolen and misused. 

To avoid phishing attacks yourself, ensure that you are visiting the right website by confirming the domain of the website before sharing any private information. 

Know the Basics of Digital Privacy

Bits of knowledge about digital privacy from here and there could save you from becoming an easy target. One must know the basics of digital privacy to ensure that all your private information is not available in the public domain. As this information can be highly misused. 

Knowing about digital privacy also gives you insights into the value of data and the possibility of it being misused by companies for manipulating your decisions. 

Conclusion

KYC is a critical element for any organization but its significance heightens when it comes to financial transactions. Cryptocurrencies are pseudonymous by nature and not-so-easy to track down in case of an illegal exploit. KYC can make these things much simpler for the regulatory authorities and offers their users a sense of trust. 

KYC could compromise the anonymity that users enjoy on the blockchain network but it has emerged as the need of the hour. Proper regulation should not be seen as a disadvantage to the chain but a legal acceptance to the entire crypto ecosystem.