Crypto Glossary

Posted on September 13, 2021 in
Glossary

Know Your Customer (KYC)

Know Your Customer (KYC) compliance refers to the process of collecting certain information from customers in order to verify their identities and to comply with any regulatory requirements that may apply. It is possible that some of these requirements will include aspects such as restricting access to citizens of a specific jurisdiction. Depending on the country in question, laws and regulations frequently impose obligations on businesses to complete KYC procedures.

What is KYC?

A procedure through which a business or agency validates the identity of its customers is known as Know Your Customer (KYC), or sometimes known as Know Your Client. Banks, lenders, insurance providers, and other financial and monetary institutions of various sizes are required to participate in the process. Widely known as Know Your Customer (KYC), this data-driven process enables businesses to verify that their customers are who they claim to be, to determine whether a customer is suitable for their services, and to avoid any malicious or criminal activity associated with the use of their products or services.

Regulated markets, as well as cryptocurrency markets, benefit from thoughtful regulation. All financial institutions are expected to comply with Anti-Money Laundering (AML) rules, which include the Know Your Customer requirements. For all asset classes and regulated institutions across the world, know-your-customer (KYC) is a fundamental practice, and it is also a necessity for compliant companies in the blockchain sector.

Importance of Know Your Customer (KYC)

KYC (Know Your Customer) requirements for exchanges and cryptocurrency wallets that trade cryptocurrencies are now obligatory for all customers. 

In order to deal with the post-bubble market, this project has been fully underway since the current bull market, and it serves two distinct goals:

  1. End illicit bitcoin usage — owing to its pseudo-anonymity, bitcoin has been utilised for numerous criminal activities. The authorities aim to be able to track unlawful actions back to the individuals or entities involved by permitting as many bitcoin wallets as possible into their whitelist. To comply with federal money laundering regulations, all cryptocurrency exchanges must require its customers to complete an AML form (Anti-Money Laundering). 
  2. To reduce tax fraud since many felt uncomfortable about submitting bitcoin tax returns because of the significant price increase in 2017 – when millions have already jumped on the cryptocurrency hype train.

In general, nearly all countries where bitcoin is accepted have KYC requirements for cryptocurrency-related identities. While this appears to be effective, Satoshi Nakamoto, bitcoin’s creator, did not intend for it to succeed this way. He initially invented bitcoin as a way to challenge governmental monetary restrictions that exist.

Really, know your customers

According to the evidence of growth we can see in the cryptocurrency industry today, it appears that the market is maturing, as was to be expected. When making your investment decisions, it’s reasonable to assume that those that make an early effort in terms of consumer security will do well in the long run.

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