What is KYC?

I know what you might be thinking…

Nope. Sorry.

Unfortunately, it’s NOT a new kind of Kentucky chicken. 

What is KYC?

When opening an account, you may notice that the crypto exchange requires you to complete something called a “KYC” verification process.

Crypto exchanges in the U.S. and many other countries are subject to anti-money laundering (AML) banking laws and regulations.

In order to comply with these regulations, crypto exchanges must gather specific information about their customers.  This process is typically known as “KYC” which stands for”Know Your Customer". 

This means that you will have to provide personal information that confirms your identity.

In order to prevent funds from being used for fraud, money laundering, terrorist financing, posing as a fake German heiress, and other illegal activity, exchanges have to take things a few steps further than your barista asking for your coffee drink and nickname.

By collecting information about the identity of their customers, a database is created that law enforcement agencies can use in their investigations in the case of some future criminal activity.

“Know Your Customer”(KYC)  isn’t unique to crypto and applies to almost ALL financial institutions that hold customer funds.

For example, you actually go through a KYC process even when opening a bank account, or applying for a credit card, car loan, or mortgage.

There are different levels of KYC ranging from zero KYC to super thorough KYC.

Although some crypto exchanges may still allow users to deposit funds without going through KYC, they are becoming a dying breed as it becomes a global standard. Nowadays, most major crypto exchanges require KYC as soon as a new user opens an account.

How does KYC work?

When you sign up for an account on an exchange, you will have to provide your basic information such as:

• Your full name
• Your date of birth
• Your address
• Your email address
• Your phone number

This information is needed to ensure that the exchange meets requirements under Anti-Money Laundering (AML) regulations.

The purpose of AML regulations is to prevent people from hiding the origin, flow, and destination of electronic money transfers so that law enforcement agencies can track the flow of illicit funds. 

You can’t hide if you have to reveal your identity.

Depending on the trading platform or the local laws, the exchange can also ask for additional information such as: 

• Your source of income
• Your social security number
• A government-issued photo ID such as a driver’s license or passport
• Proof of address such as a copy of your utility bill
• A photo of yourself (selfie)
• A facial biometric scan (video selfie)

While the initial sign-up process is usually automated, financial institutions have client services teams (actual human beings) tasked with double-checking that the information provided is accurate. You might even get a call from them, too!

To find out a crypto exchange’s specific KYC requirements and how long you can expect the verification process to take, look for the customer support section on their website.

Lastly, it’s also common for exchanges to have more KYC requirements for larger account sizes or big transactions. They’re just making sure that the funds are from legit sources and that there’s nothing shady going on!

Other crypto exchanges require the same KYC process regardless of the value of the funds that you wish to deposit or withdraw. 

As you can see, it’s a lot of personal information you’ll need to disclose.

That’s why it’s important to make sure you’re dealing with a trustworthy crypto exchange!

While KYC might seem like a hassle for you, you probably don’t have a choice.

With billions of dollars entering the crypto market from various sources, more governments are forcing crypto exchanges to comply with their Know Your Customer (KYC) and Anti-Money Laundering (AML) processes.