If you've ever tried to open an account on a cryptocurrency exchange or even at a traditional bank, it’s very likely that you’ve come across the term KYC, which stands for 'Know Your Customer'.
But after all, what exactly is KYC? And why is it important for cryptocurrency exchanges to have this information? How can this information protect people who want to open an account?
There are many questions. Let's explore these points and understand the fundamental role that KYC plays in the security of the cryptocurrency market, so you can finally understand what it's all about!
What is KYC?
KYC is an identity verification process required by many financial institutions, including cryptocurrency exchanges. The goal is to confirm the identity of customers and ensure that they are not involved in illegal activities such as money laundering, terrorist financing, or fraud.
In other words, KYC helps protect exchanges, investors, and the market as a whole from the misuse of cryptocurrencies for criminal purposes. Information for all parties to proceed with greater peace of mind.
By complying with KYC requirements, users must provide personal information such as full name, date of birth, address, and in some cases, even direct statements of their sources of income. Other official identification documents that are commonly requested include a passport, ID card, or proof of residence.
Why is KYC essential for opening an account on cryptocurrency exchanges?
With the growing popularity of cryptocurrencies, the need for regulation has also increased. This has been implemented by governments and regulatory agencies worldwide, and in most cases, this happens when they start requiring exchanges to implement KYC measures to increase transparency and reduce the risk of financial crimes.
Here are some reasons why KYC is of utmost importance when opening an account on a cryptocurrency exchange:
Fraud and scam prevention: It is essential to prevent criminals from using cryptocurrency exchanges for fraudulent activities. Without KYC, it would be much easier for malicious individuals to open multiple anonymous accounts to move large amounts of cryptocurrency purchased with illegally sourced money;
Regulatory compliance: governments and financial regulators require exchanges to comply with anti-money laundering laws and terrorist financing, among other local requirements that may exist. Implementing KYC is a way for exchanges to follow these rules, ensuring a safer and regulated environment for all users;
User security: KYC helps protect users themselves, as it identifies who is operating on their platform and, with this, the exchange can take quick measures to block accounts that exhibit suspicious behaviors or prevent people from falling for scams. This makes the environment safer and more reliable;
Reducing market volatility: anonymous accounts can be used to manipulate cryptocurrency prices through illegal activities, such as Pump & Dump schemes. By requiring KYC and thus filtering out those accounts that simply generate unnecessary volume, exchanges help keep the market more stable and fair for all investors.
In other words: KYC is necessary for all parties to have more information, and the concern is the analysis of transaction data, not suspicious activities.
It is important to mention that, with measures that make an exchange more secure, this ultimately brings another interesting benefit: greater liquidity, movement for that particular exchange. This creates a cyclical movement of good news and security.
What documents are required for KYC?
We have already mentioned the documents that are typically required in KYC, but to make things easier, we will list them directly now. These requests vary from exchange to exchange, but it is worth noting that in the vast majority of cases, at least one or two of these items will be requested:
Official identification: most exchanges require users to submit a copy of a government-issued identification, such as an ID card, passport, or driver’s license;
Proof of address: In addition to personal identification, it is common for exchanges to request recent proof of residence, such as a utility bill, a water bill, or a bank statement, showing the user's full name and address;
Selfie or live photo: many platforms request a selfie or even live video verification to ensure that the person sending the documents is the same one appearing on the submitted identification;
With items like these, exchanges can ensure that they are dealing with real people who have legitimate identities, and again, this increases the security of the platform for everyone.
How does KYC protect users from scams and fraud?
By requiring all users to undergo the identity verification process, exchanges create an additional layer of security. This helps prevent hackers and scammers from using fake accounts to steal funds, carry out scams, or engage in illicit activities.
An example that helps understand how KYC makes a difference: if a hacker gains access to a user's account, the KYC requirement could make it difficult for them to withdraw large amounts of cryptocurrency, as many exchanges require a new verification process before allowing significant withdrawals.
Furthermore, if an account is compromised, the exchange can track and block suspicious activities more quickly when it knows the user's identity.
Another important point is the prevention of fraud by criminals attempting to launder money through various anonymous accounts. With KYC, exchanges can monitor suspicious transactions and notify the relevant authorities, protecting the market from this type of activity.
How to complete KYC on Binance?
Binance, the largest cryptocurrency exchange in the world, offers a simple yet robust KYC process for its users. Here’s a summary of how to complete KYC on the platform:
Account creation: The first step is to create an account on Binance using your email or phone number;
Identity verification: after creating the account, you will be asked to complete identity verification. To do this, you will need to provide:
Full name, date of birth, and residential address;
Upload an identification document, such as a passport or ID card;
In some cases, proof of residence may also be required;
Facial verification: we will ask you to perform a facial verification using your device's camera, with the aim of ensuring that you are the same person that appears on the submitted document;
Approval: After submitting the documents, Binance will review the information for a period of time. This review process may take a few hours or up to a day, depending on demand. Once the verification is approved, you will have access to all the features of the platform, including deposits, trading, and withdrawals.
After all this, what is the conclusion?
Basically, we can conclude that KYC plays a crucial role in the cryptocurrency market because, in addition to providing protection against fraud and financial crimes, it also ensures regulatory compliance of exchanges.
While the identity verification process may seem like a hurdle for some, it is an essential tool for creating a safer and more trustworthy environment for all investors. For the reasons explained here, which you now know, it is better for everyone if this information is available.
By providing the necessary documents and following the proper steps, you not only protect your transactions but also help strengthen the integrity of the cryptocurrency market.
Therefore, completing KYC on exchanges like Binance is an essential step for anyone looking to operate safely in the cryptocurrency world.
Did you know all this or did you think it was just bureaucracy? Tell us!
---
Photo available on Freepik