What is Anonymous Trading and Why do Traders Need It?

Initially, the essence of cryptocurrency was anonymous transactions. No middlemen, like banks or other financial institutions are involved. For example, when you hold money in your bank account, the bank sees your identity, your transactions, your balance and operations. In the crypto world, the whole system is decentralized. Only a wallet holder may see his balance and deals.

Now many cryptocurrency exchanges require customers to undergo a mandatory verification process to obtain permanent access to their services. For the moment, most crypto exchanges are regulated by law enforcement agencies. Thus, customers need to pass different procedures to start trading:

- Verification
- KYC
- AML
- DD

The requirements and specifics vary depending on an exchange. Thus, a customer’s personal information is visible to the exchange administration. However, some of them allow a certain degree of anonymity. For instance, one can trade anonymously on Binance up to 2 BTC a day without fiat-crypto transfers.

This article is a short overview on traders’ anonymity and its advantages. But first, let’s clear out some points on KYC for you to understand the difference between anonymous and non-anonymous trading.

What is KYC?

KYC stands for “Know your customer”. This is a mandatory verification of the client’s personal data. A customer usually confirms:

- a valid identity card
- a utility bill
- an insurance number

As a rule, customers need to provide information for KYC during the account registration process. Sometimes they do it in case they change their data. For example, if a customer officially changed his ID a few months after registering on the exchange. If a person does not complete the KYC procedure, he cannot access all the functions the cryptocurrency exchange offers.

If we take top crypto exchanges, KYC requirements are obligatory. They ensure their work complies with the laws and regulations. Before, crypto exchanges rarely requested information for KYC. But these factors below provoked the emergence of the verification process:

- cryptocurrency rates rise
- people’s interest to cryptos

- money laundering through crypto
- crimes payment
- tax evasion
- other illegal activities

In the absence of KYC and due diligence, a cryptocurrency exchange may be held liable, and the user will get away with the crime. Therefore, the top crypto exchanges operate in accordance with anti-money laundering laws today.

However, anonymous trading still exists in the crypto world. And some crypto exchanges allow users to trade without their personal data up to a certain point. These anonymity conditions may be different.

What is anonymous trading?

In simple words, here a trader’s identity is not revealed. There’s no need for him to disclose his personal information:

- name
- ID
- residence
- address
- taxpayer number

- insurance number

A person doesn’t undergo KYC or verification. All he needs is an email, password, and mobile phone number to start trading. Practically, everyone would prefer to trade anonymously. But let’s see who’s really interested in this.

1. High-ranking investors or traders

They execute trades, visible in the order book. But they do not disclose their identity.

Why? They don’t want to disclose their strategy. They don’t want to give hints to other traders about what to buy or sell. It’s clear that if the strategy is successful traders don’t want to share it as they would lose their profit.

2. Market-influencers

Such players influence the market. Thus, they buy or sell certain assets in big amounts to get profit or invest. For example, an institutional buyer wants to acquire a lot of crypto for a certain purpose. Thus, he may not want to disclose his intentions. There’s a risk that smaller traders will raise the price hoping to sell it for a quick arbitrage profit. Anonymous trades are usually associated with a large impact on the price, so such traders want to be anonymous.

Most often, retail traders do not need to engage in anonymous trading, as they usually do not have a significant impact on the market price. That’s why they have no problems with passing the verification process.

3. Celebrities

A celebrity doesn’t want anybody to know he’s dealing with crypto as this news would be widely discussed in the media. For example, if such a person is a famous trader, other small traders will just copy his strategy. Or, if this person wants to convert money in crypto in order to avoid extra tax fees or buy real estate without revealing the income source, he would prefer to trade anonymously. As a rule, they delegate such deals to the companies or specialists who trade without revealing the beneficiary’s data.

Can trading be 100% anonymous?

No trading on regulated exchanges is totally anonymous. The regulators should be able to access trading information in case of a suspicious transaction. So, anonymity protects the individual buyer from other traders, but not from regulators.

Moreover, other traders are not concerned about small players. Besides, most retailers trade through large brokers that have thousands of other traders. So, their identity is hidden from others anyway. Trader’s ID is not publicly available when placing a transaction. Nevertheless, it’s visible for the brokerage company and other market players can see the broker’s name.

Yellowmoon’s anonymity advantages

Yellowmoon is a new cryptocurrency exchange, providing traders anonymity. It already has more than 10 mln users and one of the lowest transaction fees, comparing to other cryptocurrencies. Any person, holding crypto may start trading there.

Conclusion

Anonymous and verified trading have their advantages and disadvantages. The first one is more convenient for customers as they don’t have to wait for a verification process and start trading. In its turn, verified trading is legal. Thus, regulators and law enforcement agencies won’t block trader’s accounts. However, they may demand some documents, confirming the income source which is inconvenient.

Of course, the final decision on how to trade totally depends on the end-user.