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What are KYC and AML, and Why Do They Matter in Crypto?

What are KYC and AML, and Why Do They Matter in Crypto?

What is Know Your Customer (KYC)?

Benefits of KYC

  • By establishing customers’ identity and financial history, lenders can assess their risks, which leads to responsible lending and risk assessment.
  • KYC fights identity theft and other financial frauds
  • As KYC is a proactive measure, it minimizes the risk of money laundering.
  • It increases the trust, security, and accountability of financial service providers.

What is Anti-Money-Laundering (AML)?

How does AML work

  1. Suspicious money transfers like large inflows and outflows are automatically reported with the help of AML measures. Inconsistent behavior in withdrawals and deposits of money are also monitored.
  2. During an investigation, suspicious customers are not allowed to make any financial transactions. The investigator will continue to make a Suspicious Activity Report (SAR)
  3. If there is any evidence of illegal activity, it is supplied to the relevant officials. Based on the report, bad actors are liable for appropriate action and the funds will be transferred to the original accounts if they are found stolen.

What is the difference between AML and KYC?

Why do we need KYC & AML for cryptocurrencies?

  • If crypto funds are stolen or removed, no admin can help the victims because blockchain transactions are irreversible. KYC and AML help minimize this risk.
  • Cryptocurrency offers anonymity or pseudonymity. Customers don’t need to share their personal details to create a crypto wallet and start trading cryptocurrencies.
  • Crypto regulation and taxation are uncertain in most countries. Criminals leverage this opportunity as tax authorities are struggling to bring efficient tax regulations into the crypto space.

Regulation of Cryptocurrency exchanges

Final Thoughts



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