What is KYC and why is it important

2022-05-04, 08:34

· KYC is a major part of the financial industry
· KYC is optional in the crypto industry and both KYC and no-KYC exchanges exist
· KYC rules will continue to develop in the future
· Understanding KYC

Know your client or know your customer is a concept that originated in the finance and investment industry. It can be defined as a set of predefined standards that are used to verify the customer and understand their risk tolerance as well as financial profile. This concept has carried on in the crypto world and some exchanges use KYC while onboarding their customers.

In the banking sector, KYC is mandatory and SEC requires new customers to provide detailed information before they open an account. Financial institutions are also required to keep up-to-date information about their customers and keep track of any illegal or suspicious activities. Meanwhile, KYC is not compulsory in the crypto space as it is more decentralized and promotes confidentiality. When it comes to exchanges, we can classify them into two categories, namely crypto-to-crypto exchanges and fiat-to-crypto exchanges. While the crypto-to-crypto exchanges do not have any KYC requirements. However, the fiat-to-crypto exchanges have implemented KYC as they have to deal with the fiat currencies of their customers.

KYC requirements in crypto

The know your customer (KYC) requirements vary from exchange to exchange. As we mentioned earlier, some exchanges do not have any KYC conditions while others implement different variations of KYC depending on their specific requirements. Some may even take a few days to verify your information. You may have to provide some/all of the following information for KYC:

· Full legal name
· Scan of government-issued ID (driver’s license or passport)
· Date of birth
· Phone number
· Email address
· Physical address
· Copy of utility bill
· Photo of yourself with your ID

Importance of KYC in crypto

Know your customer rules have been pushed by governments and regulatory bodies as a means of preventing money laundering, terrorism financing, and tax evasion. By identifying the user information, the government can monitor and prevent such illegal activities. KYC also plays an important role in improving the overall public image of cryptocurrencies in the economy. This could result in more trust in cryptocurrencies and lead to wider adoption. Another advantage of having KYC in crypto is the prevention of ransomware attacks. The crypto industry has had its fair share of ransomware attacks. The attackers rely on the anonymity that comes with the crypto space and have deprived users of millions of dollars in the last few years. Stronger enforcement of KYC could serve as a means of preventing such ransomware attacks.

Nowadays, there is a great push in the crypto industry to adopt know your customer standards. Governments and regulatory bodies are pushing to make KYC a compulsory part of the crypto industry. On the other hand, crypto enthusiasts argue that the main advantage of cryptocurrencies is the anonymity and decentralized nature of the industry. By forcing KYC, we are straying away from it and moving towards the more traditional financial model. Both of these sides have their valid points in favor of their stance. Both options for KYC and no-KYC exchanges are available for customers to choose from depending on their personal preferences.

KYC in Gate.io

As one of the top cryptocurrency exchanges, Gate.io provides safe and transparent transactions. While KYC is not mandatory for deposits on the platform, it is required for withdrawals. The process is pretty straightforward and can be done by uploading a picture of your identity document along with another picture of you holding that document towards the camera. Once you have obtained KYC, you can upgrade to KYC2 by submitting a gesture photo or using the PC camera. Detailed instructions are also available in this KYC guide. Completing KYC not only allows you to be eligible for making withdrawals but also ensures that your account remains secure. The processing time for KYC verification ranges from 30 minutes to 12 hours.

Conclusion

KYC has become a major part of the crypto space in the past few years. Exchanges like Binance have now moved from no-KYC to requiring KYC for new customers. While some options are available for customers that do not want to go through KYC, the full options are only available for users that fulfill KYC requirements. This shows that in the future some major no-KYC exchanges could be pushed to comply with new KYC standards in order to operate in certain territories.

A customer that prefers anonymity can opt for decentralized exchanges and BitCoin ATMs. While the peer-to-peer exchanges might be a bit unsafe, it is a matter of personal preference if the user wants to use a KYC or no-KYC exchange. Nevertheless, KYC will continue to be a major point of discussion in the future of cryptocurrencies. Exchanges are continuing to implement these standards based on new rules and regulations. While some even opt to operate from new destinations based on lax KYC standards. In the end, it's the users that decide whether the pros of having KYC outweigh its cons or not.

Author: Gate.io Researcher: Chuk. U
* This article represents only the views of the observers and does not constitute any investment suggestions.
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