What Is KYC And How Crypto Exchanges Use It

As the crypto prices today rise, it’s natural that people will want to know why. Many of us have been drawn to the world of virtual money from our understanding of the stock market.

A lot of people hear the term KYC and think it’s very invasive, like a business is going to come knocking at their door to ask them what they do for a living and how much money they make.

But that’s not how KYC should work. In the world of cryptocurrencies, KYC requires you to submit proof of identity (like your driver’s license) and proof of address (like your utility bill or bank statement).

The exchange then checks this information against several databases in order to ensure that you are who you say you are and that you have a legitimate reason to be transacting with them.

What is KYC or Know Your Customer?

KYC, or Know-Your-Customer, is a process that exchanges and other financial institutions use to ensure that their users are who they say they are. KYC rules vary depending on the institution. For example, a cryptocurrency exchange like KuCoin, may require their users to provide proof of identity, whereas your bank likely will not.

The purpose of KYC is to prevent money laundering and the financing of terrorism. These crimes are facilitated by the ability to move large sums of money without drawing attention, and therefore KYC helps keep these activities from going unnoticed.

Today’s digital world makes it much easier for criminals to move money around with little oversight, so implementing KYC as an anti-money-laundering tool has only become more important as time goes on.

A major part of KYC is AML—Anti-Money Laundering—and this is where KYC gets interesting for crypto exchanges. Cryptocurrencies have been used for illicit activities such as drug trafficking and money laundering ever since their inception.

But with the rise in popularity of Bitcoin, altcoins and trading pairs including XLM USDT and many more in recent years, it’s become even easier for criminals to launder their cash through crypto exchanges.

KuCoin is a crypto exchange that adapts the use of KYC. Because of its high-security features, it only shows how secure and safe it is to use KuCoin exchange especially as the KuCoin price token increases.

What Are The Process of KYC?

Collecting Information

KYC is about collecting these documents and making sure their information matches. As a company, you will want to know your customers. In other words, you will want to collect those documents from them and then verify those documents against their information in the relevant databases (the blockchain, the government’s records, etc.).

If everything checks out, then your customer has been verified as who they say they are, and you can trust them with your money (which is why KYC is so important in crypto).


The second step is verifying if the personal information provided by the user matches with any records that are already on file with the company or with an independent 3rd party. In some cases, an in-person meeting may be required to verify the user’s identity.

Create Profile

The third step is creating a digital identity profile for the client. This digital record will be available to all certified companies that wish to use it when they conduct business with this client.

By following these steps, you can ensure that you are only doing business with verified customers who have legitimate identities that are backed up by proper documentation of their identity and physical address where they live.

Advantages of KYC in Crypto

Verify Identity

Identity is the purpose of KYC—to identify you as the person who owns the assets you are using. KYC is the process of verifying one’s identity before buying or selling cryptocurrency through exchanges.

Prevent Money Laundering

KYC helps protect users from theft and fraud. It’s worth noting that KYC isn’t necessary for cryptocurrencies—anyone can buy bitcoin anonymously on any crypto exchange such as KuCoin exchange. However, when a cryptocurrency startup wants to raise money through an Initial Coin Offering (ICO), they must often comply with KYC laws in order for the ICO to be considered legitimate by regulators.

Protection Against Fraud and Scammers

The advantage that KYC offers is that it helps protect both the trader and the customer from fraud. When someone purchases cryptocurrency with cash for the first time in their life, it’s easy for the person selling it to take advantage of them: they can say anything about what they’re selling without having any proof to back up their claims.

Government Compliance

It also helps exchanges comply with government regulations and keep their licenses.

Is It Possible To Buy Crypto Without KYC?

While it is true that the majority of reputable exchanges require some sort of verification, there are some ways to avoid KYC. Peer-to-peer (P2P) exchanges like KuCoin and LocalBitcoins, for example, let you buy and sell bitcoin in person.

Imagine you’re at a flea market and you want to trade your old flip phone for a shiny new iPhone X. At the P2P exchange, you can set up a meeting with another seller who wants to get rid of their iPhone in exchange for your flip phone.

You meet in a public place, show them how much money you have on your phone via your banking app, they do the same with their banking app, and then you give them the phone after they’ve paid through their bank app.

This is just one of many examples where P2P exchanges can be used to buy and sell cryptocurrencies without having to divulge any personal information