Why do exchanges require KYC verification?

If you have ever tried to open an account at a cryptocurrency exchange or even at a traditional bank, you are likely to have encountered the term KYC, which stands for “Know Your Customer.”

But what exactly is KYC? Why do cryptocurrency exchanges need this information? How does this information protect individuals who wish to open accounts?

There are many questions. Let’s explore these points and understand the crucial role KYC plays in the security of the cryptocurrency market, so you can ultimately understand what it is!

What is KYC?

KYC is an identity verification process required by many financial institutions, including cryptocurrency exchanges. Its purpose is to confirm the identity of the customer and ensure they are not involved in illegal activities such as money laundering, terrorism financing, or fraud.

In other words, KYC helps protect exchanges, investors, and the entire market from misuse of cryptocurrencies for criminal activities. This information allows all parties to operate with greater peace of mind.

When meeting KYC requirements, users must provide personal information such as full name, date of birth, and in some cases, even declare their source of income directly. Other commonly required official identification documents include passports, ID cards, or proof of residence.

Why is completing KYC after registration crucial for trading?

As cryptocurrency becomes increasingly popular, the need for regulation is also growing. This has been implemented by governments and regulatory agencies around the world, and in most cases, it occurs when they begin requiring exchanges to implement KYC measures to increase transparency and reduce financial crime risks.

Here are some key reasons why completing KYC after registration is essential:

Prevent scams and fraud: It is vital to prevent criminals from using cryptocurrency exchanges to carry out fraudulent activities. Without KYC, malicious actors can more easily open multiple anonymous accounts to transfer large amounts of illicitly obtained cryptocurrencies;

Compliance: Governments and financial regulators require exchanges to comply with local laws such as anti-money laundering and counter-terrorism financing regulations. Implementing KYC is a way for exchanges to adhere to these rules, ensuring a safer and more regulated environment for all users;

User security: KYC helps protect users themselves by identifying who is operating on their platform, enabling exchanges to quickly take action to block suspicious accounts or prevent people from being scammed. This makes the environment safer and more reliable;

Reducing market volatility: Anonymous accounts can be used to manipulate cryptocurrency prices through illegal activities. By requiring KYC and filtering out accounts that only generate unnecessary trading volume, exchanges help maintain a more stable and fair market for all investors.

In other words, KYC is necessary so that all parties have more information, focusing on analyzing trading data rather than suspicious activities.

It is worth noting that, with measures to enhance exchange security, another interesting benefit ultimately emerges: higher liquidity and activity on specific exchanges. This creates a positive cycle of good news and increased security.

What documents are needed for KYC?

We have already mentioned the typical documents required for KYC, but for convenience, we will now list them directly. These requirements vary by exchange, but it is worth noting that in the vast majority of cases, at least one or two of these items will be required:

Official identification: Most exchanges require users to submit a copy of government-issued ID, such as an ID card, passport, or driver’s license;

Selfie or live photo: Many platforms require a selfie or even real-time video verification to ensure that the person submitting the documents matches the identity on the ID.

Through these elements, exchanges can ensure they are dealing with real individuals with legitimate identities, further enhancing platform security.

How does KYC protect users from scams and fraud?

By requiring all users to go through an identity verification process, exchanges create an additional layer of security. This helps prevent hackers and scammers from using fake accounts to steal funds, commit fraud, or engage in illegal activities.

An example that helps understand how KYC makes an impact: if a hacker gains access to a user’s account, KYC requirements may make it difficult for them to withdraw large amounts of cryptocurrency, as many exchanges require new verification processes before allowing large withdrawals.

Additionally, if an account is compromised, exchanges can more quickly track and stop suspicious activity because they know the user’s identity.

Another important point is preventing criminals from using multiple anonymous accounts for money laundering. Through KYC, exchanges can monitor suspicious transactions and notify relevant authorities, thereby protecting the market from such activities. **$ELIZAOS **$UXLINK $LINEA