Why Is KYC Verification Important For Cryptocurrency Exchanges?

Why Is KYC Verification Important For Cryptocurrency Exchanges?

Especially after FTX, it became clear that KYC verification is extremely important for anyone trading in America. In the long run, the ownership of the addresses with the emails sent to those addresses will be questioned again. Therefore, the importance of KYC becomes clear once again. 

What Is KYC? Why Is It Important?

KYC, which stands for “KYC” or identity verification, is a set of measures financial institutions must take to ensure that their customers are real people and are not involved in fraud. 

If a customer does not meet the requirements or provide sufficient documentation, the institution can terminate the customer’s account or restrict access to certain services.

Companies are increasingly using KYC approaches to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.

Why Is KYC Important For Cryptocurrency Exchanges?

Because bitcoin exchanges and wallets are now considered “financial institutions,” they must implement KYC regulations. In line with Satoshi’s concept of an anonymous and decentralized currency, centralized exchanges must first ensure consumer anonymity. 

Due to the increasing regulatory obligations of various market participants, exchanges are now required to verify the identity of their customers. To this end, exchanges use the security measures mentioned above:

What Security Protocols Are Used?

Many security protocols are actively used as these options come to the fore. It would be right to list them as follows. 

Why Is KYC Verification Important For Cryptocurrency Exchanges?

Identity Verification Step 

Cryptocurrency exchanges are required to confirm the identity of their clients through verification. This verification also allows them to confirm that none of their clients are subject to international sanctions.

Exchanges should be aware of their client’s financial activities through client monitoring. To this end, they continuously monitor transactions and investigate those that resemble illegal activities.

AML Review

This is a verification method that analyzes money laundering risks related to the activities of their clients. 

KYC Trading Volume Analysis

Binance, the world’s largest cryptocurrency exchange by trading volume, introduced KYC procedures in 2021 that require new and existing users to present official identification and facial recognition. While crypto ATMs and decentralized exchanges (DEX) are exempt from KYC regulations, all major centralized exchanges currently implement KYC procedures. Therefore, investors can buy bitcoins from a centralized exchange without going through the KYC process.

What Are The Advantages Of The Cryptocurrency System?

Despite the practical obstacles exchanges face in adopting KYC standards, both exchanges and regulators benefit in several ways. Here are some of the key benefits that stand out. 

Compliance For Cryptocurrency Exchanges

As it becomes easier for exchanges to obtain an operating license, this will facilitate their expansion into other countries. This is because KYC regulations make it easier for exchanges to operate in a new jurisdiction.

Maximum Confidence In The Control Of Money

Stringent authentication measures reduce the possibility of the exchange being used for criminal activity.

Illegal Unblocking Measures

KYC procedures allow exchanges to focus on development and investment without legal barriers while ensuring that their services are not used for illegal activities.

KYC procedures make it more likely that cryptocurrencies will be accepted globally and used alongside regular fiat currencies, allowing retailers to accept them globally.

When all of these options are considered together, it is clear that KYC valuation is an extremely logical choice.