KYC plays a major role in verifying your identification. Whether it’s a centralized or decentralized ecosystem, KYCs are highly recommended to ensure the uninterrupted and smooth functioning of the services. In this article, you’ll understand the importance of KYC or identity verification in the crypto ecosystem and a lot more in detail. So, let’s dive in.
What Is KYC Or Identity Verification?
Know Your Customer/Client is most commonly known as the KYC. The KYC analysis, tracks, and verifies the users’ identity by a centralized financial institution or organization. It verifies authentic ID proof such as Voter ID, Aadhar Card, Driving License, Utility Bills, Passport, or other reliable centralized documents. Usually, the required documents carry from place to place.
The KYC needs to be produced mostly during the opening of the account. However, updating the KYC is significant if you change your name or any other personal information a few months or years after opening the account. The users who didn’t complete KYC might not be eligible to access all the options in the crypto exchanges.
Let’s take an example to understand in depth. Finance platforms allow the users to perform limited transactions without submitting KYC. However, the user can utilize a wide range of options from unlimited transitions to the higher withdrawal of digital currencies upon submitting the KYC. Hence, it’s highly advised to complete the eKYC before opening the crypto exchange account.
Process of KYC Why Is KYC
In general, the KYC process varies from region to region, depending upon your type of business or objectives. However, here are a few basic features of the KYC process that you should know.
There are three parts to the KYC process as follows.
- CIP(Customer Identification Program)
- DD(Customer Due Diligence)
- Ongoing Monitoring
The three processes in the KYC verify the person’s background, authenticity, and a lot more.
The necessity of KYC for Crypto Exchanges
KYC(aka Know Your Customer) is highly necessary for crypto exchanges as it reflects that you’re obeying certain rules and regulations of the law. It also prevents malicious activities and spies the suspicious behaviour of the users.
Furthermore, this data can be utilized to verify the transactions history, find out fraudulent activities, and track various data that interrupts the smooth functioning of the systems. In a few cases, the crypto exchange is responsible for the fraudulent activities done by the users if he/she doesn’t verify KYC. That’s why most crypto exchanges ask for KYC verification.
Effects of KYC on Decentralization and Anonymity
The lucrative feature of cryptocurrencies is decentralization that doesn’t allow a single authority to control the systems. However, KYC makes the cryptos centralized and ensures a safe environment where all your data is secured. If the users aren’t sure of the privacy or anonymity of the crypto exchanges, the KYCs promise to protect the data under any circumstances by centralizing it. Although fear of decentralization is unclear, there are several crypto exchanges without proper KYC processing.