Why KYC Matters in Crypto: A Quick Overview
Cryptocurrencies continue to grow in popularity. Despite the persistent volatility, the value of Bitcoin and other digital currencies has skyrocketed, more and more people have become interested in investing in them. However, before you invest any money in cryptocurrencies, it is important to understand the basics of KYC — know your customer. In this article, we will discuss why KYC is so important in the world of crypto and why customers should always do it!
What is KYC in crypto?
KYC is a legal requirement that crypto exchanges, such as Himalaya Exchange, must comply with to verify their customers identities and details, in line with global regulations. It is an Identity verification process cryptocurrency exchanges undertake during onboarding to perform due diligence to get to know their consumers and understand their financial activities and risks. The purpose of KYC regulations is to reduce identity theft and fraud and for us at Himalaya Exchange, to support the military grade security system and rigorous data protection we have in place, that offers our customers an extremely secure and safe platform for trading.
During the onboarding process, KYC checks usually consist of the following steps:
· Identification — acquiring the customer’s personal data; including name, residency and date of birth;
· Liveness check — evaluating if the customer is a genuine individual;
· Verification — matching personal information to government-issued papers;
· Address verification — establishing if the customer is from the selected region;
· Risk scoring — calculating the client’s risk category depending on the preceding procedures.
These procedures are mandatory and should be taken by financial institutions to determine whether a client is at risk of money laundering and financial crime. As long as you can be verified by the exchange, you can complete the onboarding process and use crypto services.
Why is KYC important in crypto and what are the benefits?
The rise of crypto does not come unaccompanied, in the recent years, cyber criminals have turned their attentions towards the booming world of cryptocurrencies and other blockchain technologies, each year setting a new record for the total value hacked. KYC has not arrived on scene without its challenges to crypto exchanges, despite this, there are substantial benefits that come with ensuring regulatory compliance.
Reduced potential for fraud and other digital financial crimes
The key purpose of a vigorous KYC process is to reduce the risk of fraud, money laundering and other digital crimes. As cryptocurrencies have become more popular, they have been entering the scope of cybercriminals therefore increasing the need for a highly functioning and well-regulated identity verification system. KYC policies make digital transactions more secure for both customers and businesses by ensuring only legitimate users are able to access crypto services.
Improved customer transparency and trust
When an exchange takes proactive and precautionary measures to protect your account by complying with verification systems, it can both improve transparency and build customer trust. It allows you to feel secure in your transactions and feel safe when dealing with cryptocurrencies.
Helps track and detect suspicious activity
As mentioned above, the usual final step in the KYC process is risk scoring which involves determining the risk category of a client. This enables financial institutions to more accurately pinpoint suspicious activities as they have additionally verified the individual’s identity and intentions upon opening their account.
Enhanced sustainability of the crypto market
Anonymous transactions that are suspicious and criminal can sometimes influence people’s trust in the crypto market. Compliance with KYC processes can support sustainability and stabilisation of the market and boost the market value of circulating currencies by increasing the trust society has in these types of currencies.
Conclusion
Since KYC standards do not have one acknowledged worldwide path of compliance, verification procedures between exchanges can vary and be overwhelming. The KYC procedure varies by country and institution and with hundreds of crypto exchanges on the market, picking which provider to employ might be a challenge.
Exchanges with stringent KYC standards indicate that they understand compliance duties and take them seriously. It may feel tempting to avoid a longer KYC process when onboarding to an exchange but if an exchange skimps on KYC, where else might they be cutting corners? And will you trust them with your digital assets?
