When it comes to the KYC process, it’s common to think about its application to banks or other financial institutions. However, the process is now more popular among businesses, organizations and even the crypto industry (exchanges and wallets). Learn more about KYC crypto in this article.
What are the reasons for using KYC crypto?
If you are holding or trading cryptocurrencies, you must be familiar with different crypto exchanges or wallets. And the KYC crypto process refers to the verification process that every customer needs to go through so that their identity can be verified and linked to a cryptocurrency wallet.
Besides, this process provides a better understanding of the potential customer’s activities. It also helps determine whether those are legal activities or not.
Although crypto is fairly new, many cybercriminals are using it as a means for money laundering. That’s why KYC crypto is used to evaluate the possibility of the risks associated with a particular customer.
What is the process of KYC crypto?
Before customers want to buy or cash out Bitcoin or any cryptocurrencies, they have to go through a KYC crypto process that is required by most exchanges. The process of doing so is simple.
First of all, you have to provide your full name, mobile number, and residential address. This information will ensure that the customers will pass the initial stages of the verification.
Next, most exchanges will ask you to provide a copy of your legal documents. The documents can be a passport, an ID card, sometimes a driver’s license is accepted. Then you will need to provide not only a photograph of the official document but also a selfie with you holding the document. The main purpose of you holding it is to verify that the document belongs to you.
Finally, you may be asked to give information about your occupation, a utility bill, and official proof of address. But only a few cryptocurrency exchanges would do that.
Why is KYC mandatory for most exchanges?
It’s so obvious that ID verification is required for all exchanges as well as cryptocurrency wallets that allow for cryptocurrency exchanges. KYC crypto process is mandatory and it has been actively ongoing because of two main purposes:
Eliminate the illegal use of Bitcoin and other cryptocurrencies
As mentioned earlier, many cryptocurrencies, especially Bitcoin, have been used for illegal activities. That’s why authorities are trying to backtrack these illegal activities by whitelisting as many Bitcoin wallets as possible. That’s also the main reason why KYC crypto is mandatory for cryptocurrency exchanges. All exchanges must ask their customers to fill in an AML form before they could do anything.
KYC crypto process helps decrease tax fraud
Most people don’t like the idea of paying taxes, or in the context of cryptocurrency, filing for Bitcoin taxes. It’s understandable that they don’t want others to know that they are holding their Coinbase account. And if the authorities don’t know about these accounts, obviously they can avoid paying taxes.
As long as Bitcoin is legal in the country, cryptocurrency-related KYC will always be a regulatory requirement. By doing that, governments can bring in a lot of tax money if they know how to handle it properly.
How does KYC crypto affect decentralization and anonymity?
When you are not involved in any illegal activities, you don’t have to worry about your identity being verified. With that said, KYC crypto is there to ensure the proper use and exchange of Bitcoin as well as many different cryptocurrencies in the market.
But that doesn’t mean KYC crypto doesn’t have any effect on decentralization. In fact, it affects negatively because it allows governments and financial institutions to figure out how much Bitcoin you are holding and where you are sending it to.
With that said, customers can still find a way to create bitcoin wallets that are anonymous. For example, you can use a hardware wallet just to store your cryptocurrencies, but not to do any other activities like exchange them.
This option will ensure your privacy as long as you can create a new wallet for each incoming transaction.
As you can see, the benefits of going through the KYC process for cryptocurrency customers are clear. Not only will you ensure the safety of your personal funds, but also it helps keep cybercriminals out of the exchanges or wallets. As a result, KYC crypto can improve the health of the entire cryptocurrency industry as well as maintain the integrity of the financial system.
If you are looking for a solution to secure your cryptocurrency platform, but find it complex to understand, please feel free to contact us. Omatech provides leading solutions not only regarding KYC crypto, but also other industries. Check us out!