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Introduction to KYC (Know Your Customer) in Cryptocurrency

November 23, 2023

Introduction to KYC (Know Your Customer) in Cryptocurrency


Introduction to KYC (Know Your Customer) in Cryptocurrency

10 min read

November 23, 2023

What does KYC mean in crypto?

Know-Your-Customer, commonly abbreviated as KYC, is a verification process where a financial institution or business verifies the identity of its customers. In the crypto world, KYC usually involves submitting various identification documents like a government-issued ID, proof of residence, and sometimes even a selfie for facial verification. The purpose is to ensure that you are who you say you are.

Why Do Exchanges Require KYC  in Crypto ?

  1. Legal Compliance: Many jurisdictions require financial services, including crypto exchanges, to perform KYC as part of their anti-money laundering (AML) and counter-terrorism financing (CTF) obligations.
  2. Account Recovery: Having verified identification can assist in the account recovery process if you lose access to your account for some reason.
  3. Fraud Prevention: By verifying the identities of their users, exchanges can better prevent fraudulent activities like identity theft and financial fraud.
  4. Transparency: KYC adds a layer of transparency that helps build trust between the exchange and the user, making it harder for illegal activities to go unnoticed.
  5. Market Access: Some features or financial products on exchanges might only be accessible to verified users due to either legal requirements or risk management considerations.

So while KYC might seem like a hassle, it's a necessary step to ensure the integrity and security of the crypto ecosystem, as well as to comply with legal obligations.

Can You Perform Crypto Transactions Without KYC ?

Alright, so imagine crypto transactions without KYC is just making it much more normal for the users to be incharge of their funds and transactions as per their best interest . You can hop on Plena, buy some Bitcoin, and no one asks who you are. Sounds great for privacy, right? .Perfect, on the top of it users doesn't need to hold any native chain tokens to pay the gas fees. They just come and become zero to hero on plena while starting their crypto journey from their first transaction.

Importance and Challenges of KYC for Crypto Exchanges/ Industry

  1. Privacy Concerns: People love crypto for its anonymity, right? Well, asking for personal info can be a buzzkill for users who value privacy. Balancing the need for security with respecting user privacy is like walking a tightrope.
  2. Speed vs Safety: Users hate waiting. The quicker they can start trading, the better. But thorough KYC checks take time, so it's a juggling act between making things quick for users and ensuring everything's above board.
  3. Human Error: Documents can be tricky. Maybe a user's photo is blurry, or they made a typo. These tiny errors can cause big delays and can be frustrating for both the user and the exchange trying to process the verification.
  4. False Positives: Sometimes the system gets a bit too cautious and flags transactions as "suspicious" when they're totally fine. Sorting out these false alarms takes time and resources.
  5. Legal Hurdles: Laws around crypto vary by country, and they're changing all the time. Keeping up-to-date with different regulations and ensuring compliance is like trying to hit a moving target.
  6. Cost: Good KYC software and monitoring systems aren't cheap. Plus, you need a team to manage it all. It adds up and eats into profits.
  7. Tech Issues: Systems can crash, databases can get corrupted, and when that happens during KYC checks, it's a headache for everyone involved.
  8. Data Security: Storing sensitive personal data is a big responsibility. If there's a security breach, not only is it a legal nightmare, but it also erodes user trust.
  9. Scalability: When an exchange starts getting popular, it needs to handle more KYC checks, faster. Scaling up the operations without compromising on the quality of checks is a steep climb.
  10. Public Image: Lastly, if users feel the KYC process is too invasive or complicated, they'll just go to another exchange. So there's always the challenge of making KYC as painless as possible without cutting corners.

So, yeah, while KYC is essential for the safety and legality of a crypto exchange, it does come with its own set of hiccups.

What are the benefits of KYC in crypto?

  1. Regulatory Compliance: KYC helps crypto platforms comply with local and international regulations. This is vital for businesses to operate legally and avoid potential fines or legal actions.
  2. Risk Mitigation: KYC processes help to reduce the risk of fraudulent activities such as identity theft, financial fraud, and money laundering, ensuring a safer trading environment for all users.
  3. Enhanced Security: By verifying the identity of users, KYC adds an additional layer of security. This can also aid in account recovery in case users lose access to their accounts.
  4. Market Integrity: The implementation of KYC practices promotes a more transparent and trustworthy market, which can attract more mainstream users and bigger investors to the crypto space.
  5. Operational Efficiency: Streamlined KYC processes can help businesses automate and simplify customer onboarding, thus enhancing user experience and operational efficiency.
  6. Accountability: With verified identities, transactions become more traceable. This accountability is crucial for dispute resolution and can assist law enforcement in criminal investigations.
  7. Global Business: Compliance with KYC regulations can make it easier for crypto businesses to partner with traditional financial institutions and operate across different jurisdictions.
  8. Product Access: Some financial products or account features may be restricted to users who have completed the KYC process, giving verified users access to a wider range of services.
  9. Customer Confidence: Knowing that a platform takes regulations seriously can increase the confidence of users and investors, thereby potentially increasing the user base and investment into the platform.
  10. Data Analytics: Collecting KYC data can also serve the purpose of better understanding the customer base, allowing platforms to improve their services or tailor new products more effectively.

By bolstering the ecosystem's integrity and security, KYC practices not only benefit individual platforms but also help in the broader adoption and acceptance of cryptocurrencies.

Benefits of No-KYC platforms

  1. Privacy and Speed : Non-KYC platforms offer a range of benefits that cater to the needs of crypto enthusiasts who prioritize privacy and speed. First off, these platforms save you the hassle of submitting personal documents for verification, making the registration process quick and simple. This is especially useful for those who are not comfortable sharing personal information online.
  2.  Higher degree of anonymity : No-KYC platforms generally offer a higher degree of anonymity. Since you're not required to disclose personal details, your transactions and trading activities are less likely to be traced back to you. This is appealing to users who want to keep their financial activities private.
  3.  Globally Accessible: No-KYC platforms can also be more globally accessible. Because they don't have to comply with jurisdiction-specific KYC regulations, these platforms can offer their services to a broader range of users, regardless of where they are located.

How to ensure your customers’ personal data is handled safety

Self-custody ensures maximum data safety by giving you full control over your own digital assets and private keys. Unlike third-party services, where your information is stored on external servers , Self custodial wallets don't take or store any of the users personal data, thus making it a much better option than any exchanges and KYC based platforms. This minimizes the risk of hacks and unauthorized access, making it the safest option for data protection.

Do crypto wallets need KYC compliance for VASPs?

For Virtual Asset Service Providers (VASPs), such as cryptocurrency exchanges, KYC compliance is a crucial part of their operational responsibilities. It helps ensure they meet regulatory standards, especially regarding Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) policies. Here's what KYC compliance generally looks like for VASPs:

  1. Customer Identification: When a user signs up, VASPs collect basic identification information. This often includes name, address, date of birth, and nationality.
  2. Document Verification: Users are typically required to submit supporting documents like government-issued photo IDs (passport, driver's license), proof of address (utility bills or bank statements), and sometimes additional confirmation like a selfie.
  3. Ongoing Monitoring: VASPs continually monitor customer transactions to identify suspicious activities that could indicate money laundering or other illegal actions. They often employ automated systems for this but may also have human oversight.
  4. Transaction Limits: Until a user is fully KYC-verified, they might face restrictions on deposit and withdrawal amounts. This serves to minimize the risk associated with anonymous transactions.
  5. Record-Keeping: VASPs are required to keep records of customer data and transactions for a specified period (often five years) to aid in future investigations and to remain compliant with regulatory requirements.
  6. Reporting: Certain types of transactions or activities must be reported to the appropriate regulatory bodies. This could include large transactions exceeding a specific threshold or any activity flagged as suspicious during ongoing monitoring.
  7. Internal Audits and Reviews: Regular audits and compliance reviews are conducted to ensure that all KYC procedures are up to date and in line with current regulations.
  8. Cooperation with Authorities: VASPs are obliged to cooperate fully with regulatory authorities in case of audits, investigations, or data requests.
  9. Employee Training: Staff members who handle KYC processes and customer data are often required to undergo specialized training programs to understand the regulatory environment and best practices.
  10. Data Security: Because KYC collects sensitive personal information, robust cybersecurity measures must be in place to protect this data from unauthorized access and breaches.

Non-compliance with KYC regulations can result in hefty fines, loss of operating licenses, or even criminal charges for VASPs. Therefore, strict adherence to KYC processes is vital for the long-term sustainability of any VASP.

What is the KYC Verification Process for Crypto Exchanges?

The KYC (Know Your Customer) verification process for crypto exchanges is a crucial step in ensuring secure and legal cryptocurrency transactions. This process is designed to prevent illegal activities such as money laundering, fraud, and financing of terrorism by verifying the identity of users. Here's an overview of the typical KYC process on most crypto exchanges:

Account Creation

Initially, users need to create an account on the crypto exchange by providing basic information such as their name, email address, and password. This step usually involves accepting the terms and conditions of the exchange.

Identity Verification

The core of the KYC process involves verifying the user’s identity. This step requires users to submit various documents. Commonly requested documents include:

  • Government-Issued Photo ID: This can be a passport, driver’s license, or national ID card. The document must be valid and clearly show the user's full name, photo, date of birth, and expiry date.
  • Proof of Address: This is typically a utility bill, bank statement, or any official document that shows the user’s name and current address. The document should be recent, usually within the last three months.

Selfie Verification

Some exchanges require a live selfie or a photograph of the user holding their ID document. This step helps verify that the ID belongs to the person creating the account.

Additional Information

Users may be asked to provide additional information like their occupation, source of funds, and intended trading activities. This information helps exchanges assess the risk profile of the user.

Verification Process

After submitting the required documents and information, the exchange reviews everything to ensure its authenticity. This process can be automated or manual and might take from a few minutes to several days, depending on the exchange and the volume of applications.

Enhanced Due Diligence (EDD)

For users who intend to perform large transactions, exchanges may conduct Enhanced Due Diligence. This involves a more detailed examination of the user’s activities and financial background.

Approval or Rejection

Once the verification process is complete, the user is either approved to use all the exchange's services or rejected if the documents don’t comply with the exchange’s requirements or regulatory standards.

Continuous Monitoring

Even after approval, the user's account may be subject to ongoing monitoring to ensure continued compliance with regulatory requirements.

How to Complete KYC on Plena Crypto Super App ?

Generally you don’t need KYC to deposit Crypto on Plena Crypto Super App but if you wanna buy crypto through any Fiat on Ramp Providers of Plena Like Moonpay , Banxa or Ramp you need to perform third party KYC for them in order to buy crypto using their solutions and the generic steps are as follows: 

General Steps to Complete Third Party KYC on Plena Crypto Super App to Buy Crypto

Navigate to Buy Section and Select Provider

  • Once you go to provider screen enter the amount of crypto along with the chain to buy crypto on

Provide Personal Information

  • Enter required details such as your full name, date of birth, and address. This information should match what is on your official documents.

Upload Identity Documents

  • You will likely need to upload high-quality images of official documents. This could include:
  • A government-issued photo ID (e.g., passport, driver’s license, or national ID card).
  • Proof of address (e.g., a recent utility bill or bank statement).

Take a Selfie or Live Photo and Wait for Verification 

  • Some apps require a live photo or a selfie with your ID document to ensure the person creating the account matches the ID.
  • After submission within 2-3 minutes your verification is completed successfully

Submit Payment Method

  • Add payments method as per your local or international supported methods

Funds Deposited Successfully

  • Once payment is done funds are instantly transferred to your Plena Wallet in a click

Conclusion — Why KYC Is Necessary for Crypto Platforms

So, to wrap it up, Know-Your-Customer or KYC is like the bouncer at the club, making sure only the good folks get in. Crypto exchanges use KYC to verify who you are, mostly because they have to—there are laws . But Self Custody is the new trend since everyone is now educated and knows what’s best for them and doesn’t want any interference while investing and managing their assets . So NO KYC Platforms like Plena- Crypto Super App become life savior for then making them buy crypto effortlessly with having zero knowledge of crypto.

FAQ’s of KYC in Crypto

Can I buy crypto without KYC?

Yes, you can buy crypto without KYC. Plena - Crypto Super App lets you buy crypto without KYC . This might also offer more privacy and quicker access. Self Custody is the most tricky topic when it comes to buying and owning your assets and that can be only achieved through self custodial wallets like Plena.

What are the Risks of Purchasing Crypto Without KYC?

The absence of KYC (Know Your Customer ) is not a much risk, instead you get quick and private transactions .Plus on the top of it you are the owner of your own assets plus you don’t need to answer anyone for your assets being held by you.

Can someone misuse my KYC?

Yes, the misuse of KYC (Know Your Customer) information is a real concern. If a platform isn't secure or experiences a data breach, your personal details like ID, address, and even financial information could end up in the wrong hands. This puts you at risk for identity theft, financial fraud, and other forms of cybercrime. Always make sure you're using a reputable and secure platform for your crypto transactions to minimize this risk, because once your personal data is out there, it's tough to put the genie back in the bottle.

Why do people avoid KYC?

Some people avoid KYC (Know Your Customer) checks for various reasons, the most common being a desire for privacy and anonymity—traits that originally attracted many to cryptocurrencies. They might be concerned about how their personal data will be stored, used, or potentially misused, especially if the platform isn't well-secured. Additionally, the KYC process can be time-consuming, causing delays in trading or withdrawing funds, which can be a turn-off for those looking for quick transactions. While avoiding KYC might offer short-term conveniences, it usually comes with its own set of risks and limitations.

Which crypto wallets don't need KYC?

Most decentralized wallets, also known as self-custodial wallets, generally don't require KYC checks. These include wallets like Plena - Crypto Super App. Plena wallet give you full control over your private keys and doesn't hold your funds on a centralized server, which means they don't have to abide by the same regulatory standards as centralized platforms. It's a more private way to manage your crypto, but it also means you're fully responsible for the security of your own funds. Keep in mind that while the wallet itself may not require KYC, the platforms you use to buy crypto might like on Ramp Partners like Moonpay, Banxa etc.

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