What Is KYC and Why Is It Important In Crypto?
Cryptocurrencies are digital assets disrupting the financial systems in jurisdictions all over the world. It is hosted on blockchain technology as well as offers innovative new financial products and services. It constitutes digital tokens that are exchanged between the blockchain users or through the crypto exchange platforms, facilitating transactions in both fiat and digital currencies.
However, transactions between the users are usually anonyms and even take place within seconds. It is because cryptocurrency is cryptographically secured on the blockchain. It also attracts criminals as they try to evade conventional AML/CFT controls. According to the Research, the illicit transactions of cryptocurrency totaled around $14 billion in 2021. It is anticipated that $10 billion in cryptocurrency is held in illegal addresses by 2022.
In this article, we will talk about kyc crypto and its importance in detail. So, keep up with it.
What Is KYC?
The Know Your Customer is a foundation of AML/ CFT compliance regulations facilitated around the world. It requires financial institutions to identify the customers and to understand the nature of the business they are involved in. this process involves several diligence measures alongside ongoing screening and monitoring since customers engage in those services offered by a particular firm.
KYC is very significant financially because criminals employ a plethora of strategies to evade AML/CFT controls. If each customer has a rich and accurate risk profile, financial service providers can detect the customers misusing their services effortlessly. It will also prevent clients from money laundering and terrorism financing.
Challenges Crypto Exchanges Faces With KYC
With the evolving expectations about KYC for crypto exchanges, companies have to keep up with the regulatory evolution throughout the world. These currencies are anonymous and are entered in a public ledger of blockchain security, which makes them easy to trade against the international border. While trading, it does not require any complicated conversion calculations or rigorous central bank oversight.
Some countries like Netherlands, Switzerland, and France have rolled out identification requirements for users so that they can address this largely unregulated market effortlessly. In the Netherlands, the clients have to verify the ownership of their wallets as well as describe their intentions behind using cryptocurrencies. On the other hand, users have to prove their ownership of non-custodial wallets through verified documentation in Switzerland. Meanwhile, France has barred all anonymous files.
Therefore, with the growing complexity of the global regulatory requirements, the KYC processes like collecting customer data, verifying key information, protecting PII, etc., will become a more complex and cumbersome task.
Importance Of KYC in Crypto Exchanges
Despite the operational changes and challenges faced in crypto exchanges with KYC, it still holds greater importance by ensuring regulatory compliance.
Enhanced Customer Transparency And Trust
Verifying the identity of the user has the capability of improving transparency and building customer trust. When you are confident about your crypto exchange taking proactive and precautionary measures to protect your account, you will continue using their service.
Eliminates Legal Risk
With the evolution of legal expectations, the implementation of sturdy KYC can make companies more successful. Therefore, instead of running to catch up with the pace, they will focus on improving the conversion rates, streamlining the transactions, and even ensuring compliance with evolving international guidelines. This way, companies can minimize the risk of legal challenges or regulatory penalties.
Minimizes Potential For Money Laundering And Other Scams
According to Forbes, 80,000 plus instances of cryptocurrency fraud were noted in the United States the previous year. However, implementing sturdy identity verification will reduce fraudulent activity and boost market reputation significantly.
Enhanced Stability Of The Crypto Market
We all are aware of the volatility of the crypto market. The increased identity verification as part of KYC programs helps in stabilizing the market and even boost the market value.
Conclusion
Today, a number of startups are devoted to solving the KYC problems for crypto firms. These startups are offering apps, a tool that allows users to upload selfies with their IDs for increasing the verification speed.
KYC crypto is going to stay and increase the regulatory expectations worldwide as the volume and velocity of cryptocurrency transactions ramp up. This way, crypto exchanges cannot afford to wait on deploying and integrating the best KYC solutions.
