Why Crypto Exchanges Do KYC Despite Being Based On A Decentralized Technology?

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Regulators have introduced KYC norms for crypto trading

The blockchain technology, on which the crypto industry is based, is being billed as a fascinating development that is bringing transparency in monetary transactions. Despite some volatility, the crypto industry has seen an overall gain over the past two years. And, financial experts believe it should remain a sunrise industry for the foreseeable future. More investors are joining the industry every day. This continuous rise is not without attracting the attention of regulators and policymakers across the world. As this is a new industry, they keep a close watch on how it performs and matures.

Regulators have introduced several measures to minimize risks to the gradual growth of the industry and ensure no sudden bumps are experienced. One of these measures is known as KYC.

What is it?

KYC stands for “Know Your Customer”. It refers to a financial institution’s obligation to verify the identity and background checks of its clients before allowing them to use its product or platform. It is part of a broader set of measures to fight money laundering. Simply put, it stops bad actors from hiding the source of their illicit money.

To comply with the KYC process, financial institutions may ask their clients for information about their investment knowledge, risk tolerance, personal details and financial position. For crypto investments, it usually means requesting the PAN details and address proof – such as passport or driver’s license or Aadhaar.

Your bank or exchange may ask you to verify your identity more than once, depending on its requirements.

Is It possible to trade without KYC?

Yes, not all exchanges have made it mandatory to first complete the KYC process to be able to trade. But they are becoming increasingly rare. And there’s nothing wrong with having your KYC done to trade freely. It may help you with complaints or in grievance redressing later.

KYC and crypto exchanges

Being a decentralized platform, crypto trading does not require a person to transact business through banks. Hence, the crypto industry is prone to problems regarding KYC. Many decentralized services are designed to allow customers anonymity. This means many crypto firms can’t identify their customers – something regulators are not okay with. So crypto firms are now being asked to introduce stringent KYC measures.

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