Why do crypto exchanges do KYC despite being based on a decentralized technology?

Know the Importance of KYC for Crypto Trading

Regulators Introduced KYC Standards For Crypto Trading

The blockchain technology, on which the crypto industry is based, is billed as a fascinating development that brings transparency to money transactions. Despite some volatility, the crypto industry has posted 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 continued rise has not been without the attention of regulators and policymakers around the world. As this is a new industry, they keep a close eye on how it performs and matures.

Regulators have put in place several measures to minimize risks to the industry’s gradual growth 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 customers before allowing them to use their product or platform. It is part of a broader package of measures to combat money laundering. Simply put, it prevents bad actors from hiding the source of their illegal money.

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

Depending on requirements, your bank or bureau de change may ask you to verify your identity more than once.

Is it possible to trade without KYC?

Yes, not all exchanges have made it mandatory to go through the KYC process first in order to trade. But they are becoming rarer. And there’s nothing wrong with having your KYC done to be able to trade freely. It can help you later in case of complaints or complaints.

KYC and crypto exchanges

Since it is a decentralized platform, crypto trading does not require a person to do business through banks. Therefore, the crypto industry is prone to issues related to KYC. Many decentralized services are designed to allow customers anonymity. This means that many crypto companies cannot identify their customers – something that regulators disagree with. So crypto companies are now being asked to implement strict KYC measures.

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