What is KYC and why do crypto exchanges require it?

Malik Ahsan


What is KYC, and why do crypto exchanges require it? Commonly abbreviated as “KYC,” the Know Your Customer process is used by financial organizations to verify a client’s identification. Know Your Customer (KYC) is the first step in the due diligence process for Anti-Money Laundering (AML), and it aids financial institutions in assessing the potential risk that a client poses. To follow AML rules, cryptocurrency exchanges must also do KYC. Businesses can combat illegal activities like money laundering and terrorism financing if they take the precaution of authenticating their customers’ identities.

“money laundering” describes disguising the source of illicitly obtained funds. Financing terrorism, on the other hand, refers to giving money to terrorist groups. Both are highly unlawful and can threaten international stability. Customers of the exchange may be asked to provide additional identity verification information to meet Know Your Customer requirements. After a deal has verified a customer’s identification, they may only open an account and begin trading.

Can you trade crypto without a KYC?

Many exchanges do not require KYC, although AML restrictions make them rare. Crypto consumers who value privacy use non-KYCt deals despite the hazards. Trading on a non-Know Your Customer (KYC) market carries several risks, including:


Non-KYC exchanges typically have a lower security level than KYC exchanges since they have less stringent AML standards. This leaves them more susceptible to hacking, fraud, and other forms of illegal conduct.


It is common for non-KYC exchanges to have lesser liquidity than KYC exchanges. This is because non-KYC deals are often smaller and cater to a smaller customer base than KYC exchanges. This might make it challenging to find buyers or sellers when you wish to trade, which results in higher costs.


Because they are exposed to a greater risk of fraud and other illegal conduct, non-KYC exchanges typically impose higher fees on their customers than KYC exchanges do.

Benefits of crypto KYC

Benefits of crypto KYC

Even though Know Your Customer (KYC) laws make it harder to run businesses, bitcoin companies will greatly benefit from following the rules. Among these perks are the following:‍

Reduced legal risk

By doing the necessary KYC due research, businesses have a better chance of staying out of trouble with the law and the fines that come with it. Bitcoin exchanges can stay ahead of the game even as regulations change by putting strict Know Your Customer rules in place. Instead of following new rules, they may focus on raising conversion rates, making transactions more accessible, and ensuring everyone follows the new rules when international standards change. This will help them get used to changes faster.

Increased customer trust

Users are likelier to stick with a service if they have faith that the cryptocurrency exchange would proactively take preventative measures to protect their accounts from being hacked. Verifying the identity of users ultimately serves both the best interests of customers and the interests of enterprises.

‍Increased market stability

Cryptocurrency trades happen in secret and are often seen as risky. This makes the cryptocurrency market very unstable and hard to predict. Market stability can be kept with the help of Know Your Customer (KYC) programs requiring more identity proof. This also makes investors feel better about the business.

Reputational damage control

Exchanges that comply with KYC regulations are better positioned to avoid fraud and protect their reputations if they are hacked, or their data is compromised. Businesses that have implemented KYC can immediately take action to terminate or freeze accounts that may be linked to illegal conduct.

Reduced risk of scams and money laundering

The numbers explain why Know Your Customer (KYC) is crucial for Bitcoin companies. There’s no need to say this, but it’s still worth saying. In 2021, 8.6 billion dollars worth of cryptocurrencies were laundered, which shows how substantial compliance is to the cryptocurrency industry.

Importance of KYC for crypto exchanges

Importance of KYC for crypto exchanges

Governments or central banks do not control Bitcoin and other blockchain-based cryptocurrencies. This means users can send and receive payments quickly, safely, and cheaply. Because of this, deals between people on the blockchains of these currencies are often quick and private. Criminals looking to get around standard AML rules may be drawn to cryptocurrencies because they are fast and anonymous. Criminals must first find a way to exchange “dirty” cash for cryptocurrencies to wash money. Then, they can take out the “clean” money. Since this is the case, thieves often use cryptocurrency exchanges to wash their money.

It is impossible to overstate the significance of knowing your customer compliance for Bitcoin exchanges. It helps to establish confidence among investors, which is helpful, and it decreases the chance of fraud and money laundering, which is also beneficial.

Are there any crypto exchanges without KYC?

Others argue that mandatory KYC requirements counter the decentralized nature of cryptocurrencies. They believe that users of an exchange should not be required to provide any form of identification. In nations with oppressive regimes, many people place a premium on keeping private information out of the hands of the government. Some people may wish to avoid KYC for other reasons. A person’s danger of having their assets seized by creditors increases if they provide their personal information to a Bitcoin exchange, for example. Creditors will lose money, and the possibility of asset seizure decreases if this data is withheld. Lastly, some have robust privacy concerns and would instead not share their information with anyone.

PancakeSwap, UniSwap V3, and dYdX Exchange are the most popular alternatives that do not require users to provide their personal information. When consumers seek to withdraw their funds from one of these exchanges, they may still be required to supply personal details even though these exchanges do not require KYC. This is a crucial point to keep in mind. This is because most fiat-to-crypto sales will demand some form of identity verification from consumers before they can purchase or sell cryptocurrency.

Can you buy crypto without KYC?

You can get cryptocurrency in several other ways besides giving KYC. People who trade bitcoins with each other might be interested in using services like LocalBitcoins or Paxful. Using automatic teller machines (ATMs) is another way to buy cryptocurrency with regular money. It looks like a crypto ATM is like a normal ATM, but its main job is to process cryptocurrency transfers.

Finally, you can convert between different cryptocurrencies without going via an exchange by using a service like ShapeShift or Changelly. Due to the lack of need for user identification, these services are frequently referred to as decentralized exchanges. Services like Changelly offer no-Know Your Customer and Know Your Customer (KYC) solutions. For instance, the ability to conduct transactions of a more excellent value will be restricted to those users who have completed the Know Your Customer (KYC) process.

Do crypto wallets need KYC compliance?

Incorrect: crypto wallets need not be Know Your Customer compliant. Users have complete control over their cash and don’t have to entrust a third party with their information because most wallets are non-custodial and don’t store users’ private keys. However, crypto exchange wallets typically adhere to the same KYC regulations as the connected exchanges. There are several options for digital currency wallets that do not keep user data on file. MetaMask, MyEtherWallet, and Trust Wallet are just some examples. Furthermore, hardware wallets such as Trezor and Ledger do not necessitate KYC. These gadgets offer an additional safeguard by storing users’ private keys offline.


The Know Your Customer (KYC) procedure is in place to stop criminals from using your money to fund terrorism or other illegal activities. Exchanges can prevent malicious users by forcing them to reveal personal information. However, there are several downsides to the KYC procedure. Users may find it difficult and annoying, for instance. Furthermore, there is always the possibility of hackers stealing information from marketplaces. The crypto community as a whole views the Know Your Customer (KYC) process as something of a necessary evil. It’s not foolproof, but it’s one of the best strategies to prevent fraud and criminal activity in financial transactions.


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