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In conclusion, KYC for crypto is here to stay, and regulatory expectations are rising around the world as the volume and velocity of bitcoin transactions rises. As a result, crypto exchanges can no longer afford to delay implementing and integrating best-of-breed KYC systems.

What is KYC and why do we need it?

Understanding the concept of Know Your Customer (KYC) in the context of cryptocurrency.

KYC standards are designed to combat identity theft and fraud by requiring businesses to acquire and verify vital information about consumers in order to really grasp who they are. When consumers open new accounts, apply for loans, make investments, and take other essential actions, financial institutions (FIs) frequently need them to go through KYC procedures. Requests for identifying data, such as driver's licenses, Social Security numbers, and other financial statements, are frequently included in these measures, as are verification and preservation of this data to ensure compliance in the event of an audit.

While cryptocurrency exchanges are now subject to the same regulations as regular financial institutions, some have argued that gathering this data weakens the anonymity of cryptocurrencies.

Other exchanges require consumers to input identity data when registering accounts, but they instantly grant trading access without validating it – privileges are only cancelled if the KYC checks show anything concerning. Others have chosen to opt out of the US KYC restrictions by blocking access to US users.

Despite attempts to short-circuit or evade KYC cryptocurrency requirements, the increasing cryptocurrency market and wider appeal almost assure that KYC rules will not only extend for exchanges but also stimulate more regulatory enforcement.

What are the advantages of KYC in the crypto world?

Despite the operational adjustments and hurdles that KYC laws bring, crypto exchanges stand to benefit significantly from regulatory compliance, including:

Transparency and trust among customers have improved.

Verifying user identities can increase transparency while also increasing consumer trust - when users think that your crypto exchange is taking proactive and preventative steps to protect their accounts, they're more likely to stick with you.

Money laundering and other scams are less likely.

According to Forbes, over 80,000 cases of bitcoin fraud were reported in the United States last year, a 24,000 percent increase from 2016. Identity verification that is thorough can dramatically reduce fraudulent behavior while also improving market reputation.

Legal danger is reduced.

Implementing effective KYC processes can put businesses ahead of the curve, allowing them to focus on improving conversion rates, simplifying transactions, and maintaining compliance with growing international rules rather than trying to catch up.

The crypto market's stability has improved.

The crypto market is notoriously volatile, thanks in part to anonymous transactions that could be suspicious or illegal. Increased identity verification as part of KYC procedures can help the market as a whole stable and grow in value.

Why are most crypto exchanges suddenly requiring KYC?

Because most crypto exchanges are classified as MSBs (money service firms) under federal legislation, KYC is now required. While these companies have always dealt with money in some manner, initial market mistrust resulted in a lack of regulations around exchanges, especially as trading became increasingly complex and difficult for the general public.

In conclusion, KYC for crypto is here to stay, and regulatory expectations are rising around the world as the volume and velocity of bitcoin transactions rises. As a result, crypto exchanges can no longer afford to delay implementing and integrating best-of-breed KYC systems.

Written By

Petrache Ionut

May 28, 2022