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Jun 23, 2022

KYC Crypto: Meaning, Requirements and Why Is It Important

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KYC Crypto: Meaning, Requirements and Why Is It Important

What Does KYC Mean in Crypto?

So, what is KYC in cryptocurrency? Together with AML (Anti Money Laundering) directives, the KYC concept is key to establishing controls that facilitate transactions, increase the security of cryptocurrencies and prevent fraudulent use of these measures.

Crimes such as identity theft, money laundering, terrorist financing, organised crime and tax fraud are being targeted by regulators. KYC meaning cryptocurrency transactions are safer, and that enhances the financial landscape.

KYC in crypto aim both to prevent illicit use of cryptocurrencies and to trace transactions that may be indicative of crime.

Download here the complete guide on AML5 and eIDAS, the regulatory standards to operate online.

How To Buy Crypto Without KYC

Initially, cryptocurrencies were a haven for anonymity. However, with mass adoption and subsequent fraud by individuals and institutions, including money laundering and terrorism financing, lawmakers stepped in to introduce regulations for cryptocurrencies. KYC regulations and policies are therefore necessary for cryptocurrency companies to screen their users properly.

As a result, there is virtually no crypto exchange without KYC. it is very rare today to buy crypto without KYC and not be subject to crypto KYC regulation. KYC for crypto exchanges has been now made mandatory by regulators around the world.

Cryptocurrency KYC Process

How does crypto KYC work? There are varieties of KYC requirements for cryptocurrency companies around the world depending on the jurisdiction they are under. The following steps must be taken by cryptocurrency exchanges in order to comply with KYC:

Identify the customers by collecting their personally identifiable information (PII) such as their full name, place of residence, date of birth, and address (Step 1).‍

Compare the information above with the official documentation presented by the individual, such as a passport or state-issued driver’s license, as well as a proof of residence, such as a utility bill (Step 2).

Run the customer’s identity through official databases containing data on PEPs and sanctioned individuals (Step 3).

Financial institutions should follow these steps to identify whether a client is at risk for money laundering and financial crime as a result of using virtual currencies. As long as everything appears to be in order, the customer can use the cryptocurrency exchange for certain activities.

Non-KYC Crypto Exchange

Crypto exchanges KYC have become an important element of the cryptocurrency industry. Regulatory bodies from around the world have initiated crackdowns on companies with cryptocurrency exchange no KYC policy.

Ever since the regulatory crackdowns and the requirement for crypto companies to have strong AML programs as part of their licensing requirements, there are hardly any crypto companies that do not perform KYC for cryptocurrency.

Poor Crypto KYC Process

Although the adoption of KYC processes continues to grow, the crypto community still struggles with getting KYC processes in place. You can buy crypto without KYC checks, however, it is more difficult and riskier than using an exchange that complies with KYC requirements. Apart from regulations, KYC processes in most markets and crypto exchanges allow for a higher degree of user confidence, which allows users to make real-time decisions. 

As many other fintech and crypto exchanges have already shown, KYC can be transparent and painless during onboarding.

Those who conduct cryptographic operations on the European market are now required to abide by the Fifth Anti-Money Laundering Directive (AMLD5). Such companies must figure out how to do KYC for crypto of their customers. The challenge is to re-think the KYC and AML procedures used by these platforms so that we can improve and make these processes more sophisticated and effective.

Learn more about KYC crypto in our latest article about our crypto vs. Compliance webinar.

eID, RegTech Partner for Crypto Exchanges

Electronic IDentification works with clients in the crypto sector to promote a blockchain KYC solution and keep the crypto exchange platforms from a safe, guaranteed, and quality perspective.

The development of our VideoID, SmileID, and SignatureID solutions responds to the compliance need of online agents to operate safely for both themselves and their clients while increasing their user acquisition.

eID is committed to the definitive impulse of the crypto exchange sector and KYC blockchain use cases but algo to develop solutions to enhance its expansion through scalability with advanced customer acquisition tools both at the normative and regulatory level as well as commercial improvement.

Contact eID through this form and discover how to comply with KYC now and prepare for the future without compromising growth or UX.

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