Why do you need this? Well, it’s time to understand and explain all those abusive three-letter words in more detail: KYC AML.
KYC – Know your customer
The definition of KYC (translated by ” know your customer“) requires all financial institutions, including cryptocurrency exchanges, to identify and verify the identity of every customer. And this must be done before he can perform financial transactions. This protects the company from the risk of being confronted by fraudsters and terrorists and ensures the safety of customer assets. Once upon a time, it was the internal policy of every company, but over the past 5 years, KYC established itself as a clear legal practice. Crypto exchanges, as well as banks, have the right to determine the verification steps themselves, but anyone who will play or trade on the exchange must provide these documents.
- Full name
- Date of Birth
- Phone number
- Country and address of residence
- ID (passport, driver’s license, etc.)
It is not enough to provide data. The phone number must be confirmed with a one-time code via SMS, passport data – photos of documents and selfies with them, residential address – for example, a utility bill.
Also, the more money you want to bring to the exchange, the more information you will need. Generally, there is a basic level of KYCwhich allows you to perform all the basic operations, as well as advanced levels that are necessary if you want to deposit very, very large sums on the exchange.
Unfortunately, some users believe that full verification is a violation of the principle of anonymity in blockchain technology. But in fact, Crypto KYC is an indicator that the crypto exchange provides a safe space for everyone to transact. Although, on the other hand, it is the opposite of cryptocurrencies. It is because of its anonymity that many people choose to pay in cryptocurrency for various things or to pay for entertainment, such as online video poker.
AML – Anti-Money Laundering
Now let’s move on to the next abbreviation 😉 From title to title, everyone has already understood that it is about the fight against money laundering. Officially, the concept of AML was established after the establishment of the Financial Action Task Force on Money Laundering – FATF in 1989. And the full version of the name stands for “Anti-Money Laundering, Anti-Terrorist Financing and financing the development of weapons of mass destruction”.
Sounds cool, but what does a crypto exchange have to do with it? The transparency of the blockchain network is the ability for users to track the history of any transaction by cryptocurrency. Although this information is in the public domain, it does not identify the owners of crypto wallets and the reason for the transfer of funds. But any transaction may be associated with illegal activities such as terrorism, phishing or ransom. Satoshi Lab clearly developed bitcoin only for good purposes. But, like many other cool developments, the Crypt is not safe from being used for criminal purposes. Therefore, when buying a “hands” crypt, we will never know if those hands were “clean”.
And just to identify funds obtained through criminal means, the policy AML (anti-money laundering) is implemented on the crypto exchange. It includes a broader set of measures than KYC:
- transaction monitoring
- verification of crypto purity (crypto-compliance)
- risk assessment
- credit card verification etc.
In short, the crypto exchange does everything to ensure that we don’t get a single bitcoin that has been stolen or used in criminal activities.
Advantages and disadvantages of AML/KYC
- Exchanges are safe: there are no scammers, money and crypto on the exchange are legal
- You are protected even if you are not a client of the exchange. Imagine that your card has been stolen and they are trying to deduct money from it through a crypto exchange. If there is no AML/KYC on the exchange, your money will be gone forever. And if the exchange pursues such a policy, the scammers will be blocked, the money will be returned to you.
- Cheap fiat channels (bank transfers, cards) – deposits and withdrawals in fiat are always more profitable
- Additional time spent on verification (from 10 minutes for a mass client to several hours to collect the necessary information and communicate with compliance for whales)
Approaching the conclusion gently, I would like to remind you that today we are absolutely calm about the tightening of security checks at airports. The interest of this procedure, even if it is long, is obvious to all of us. Each of us sacrifices a bit of our time and comfort to be sure of our safety. It’s time to cultivate the same attitude towards your financial security. So if you are stressed while uploading your passport photo, remember that you are helping yourself and the world.
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What is KYC and why is it required on a crypto exchange
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