Why is KYC Needed in the Crypto Industry?

By CoinSteps | Crypto - Guides | 25 Jun 2020

The primary goal of cryptocurrencies is to to change the global financial system. Also, many of us use them because we have lost our faith in the traditional banking system with its regulations.

However, I think that in the last couple of years the importance of regulation in crypto industry is more than necessary.

Now you will probably wonder if i am crazy and why i have this opinion.

First, let's analyze what the KYC is and then we will continue with my point of view.

What is KYC?


KYC is an acronym for “Know Your Customer”. A the verification of personal data through official documents. Similar to the process that banks follow to open an account.

It is a regulatory policy which is used by banks, payment processors, and cryptocurrency exchanges all over the world. A standard procedure for clients opening a new account with a bank, exchange, casino, etc. to be required to provide KYC verification.

In addition, KYC is also requested for withdrawals, and if you fail to comply with these procedures can result in account limitations.

Cryptocurrency KYC is a manual process that includes physical verification of document scans. It is important because it makes sure that the customer and the information provided by them are real.

KYC and digital exchanges

In order to comply with the law, cryptocurrency exchanges are obliged to comply with verification procedures.


While most people probably are in believe that anonymous trading is a feature of the cryptocurrency market, it can also enable problematic business practices and criminal or even terrorist activity. Anonymity in the wrong hands can be a dangerous weapon.

In essence, the KYC process is the same for cryptocurrency exchanges and banks. Although there are a few exchanges that do not require it, are minimal compared to the regulated ones.

KYC in the Crypto Niche

The introduction of KYC in cryptocurrencies is all about increased transparency and the removal of undesirable actors in the industry. 

Most of the crypto-related services are requiring to undergo KYC verification as an additional security step. In case of large suspicious amounts of money being located, the exchanges should label that specific account as suspicious.

Why is KYC Needed in the Crypto Industry?

Hmm, let me explain my view on this point with an example.

Let's suppose that you bought a car for $10k from somebody else. But along the way you learn that it was stolen, something you didn't know from the beginning.

At some point, the rightful owner discover that his car is in your possesion. You may have bought it also, but it is still in its possession as long as he has the legal documents.

Most likely he will demand to take it back. If he possess the necessary documents, he will succeed by imposing the law.

The result will be to lose your money, and even the car.

Now, let's take a look at the car in our example as a cryptocurrency.

This incident could have been prevented by simply following KYC verification.

Is KYC/AML the Solution to Prevent Fraud?

I think the views will be conflicting. Many of you probably are not fan of KYC verification. But if that means that with this procedure the cryptoccurency industry can prevent frauds and illegal activities?

I would like to know your opinion on KYC. You can comment below and don’t forget to subscribe!

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