Like other financial institutions, KYC verification is mandatory for major cryptocurrency exchanges around the world to have uninterrupted access to their services. Why is KYC verification necessary, how does it benefit cryptocurrency traders, and how is it different from anti-money laundering regulations? Does KYC verification defeat the purpose of decentralization in public cryptocurrencies? In this article we will address all these questions.
What does KYC mean?
KYC is the acronym for “know your customer.” It refers to a mandatory verification of a client's identity, usually by a financial institution. This verification includes information that can be used to verify your identity, such as a valid ID, utility bills with your home address, your Social Security number, etc.
Typically, customers are required to provide KYC details when opening an account and sometimes when there is a change in information. For example, if you officially change your name a few months after creating your account, you will need to update your KYC information.
If you do not complete the KYC process, you may not be able to access all features on a cryptocurrency exchange. For example, Binance.com allows its customers to create accounts, use basic functions, and make limited transactions without submitting KYC information. However, to get full access and increase their deposit and withdrawal limits, customers have to complete KYC verification.
What is the general KYC process?
Depending on the nature of a business, KYC processes can vary but typically meet similar objectives. KYC comprises the basic functions such as data collection and verification. Additionally, it involves customer due diligence and ongoing monitoring.
KYC verification is usually grouped into three parts and processes:
1. Customer Identification Program
This is the first process, and also the simplest. It simply consists of the collection and verification of customer data. In banks, this phase is usually carried out during registration. Instead, on cryptocurrency exchanges and other less rigid financial institutions, it occurs after registration.
2. Customer Due Diligence (DD)
After verifying the identity, a company may decide to delve even deeper and check the customer's background. The objective of this check is to carry out a risk assessment. If the client has been flagged for financial fraud in the past or is being investigated, it will be flagged during the background check.
3. Continuous monitoring
Continuous monitoring ensures that KYC information is up-to-date and allows the system to continually analyze transactions that may appear suspicious. On a cryptocurrency exchange, multiple transactions of significant volumes could be flagged that are on the terrorist watch list in the United States. Based on the investigation, the exchange may suspend the client's account and notify the necessary regulatory and law enforcement agencies of the case.
Why is KYC verification mandatory on most cryptocurrency exchanges?
KYC (Know Your Customer) regulations are mandatory on major cryptocurrency exchanges to ensure they comply with laws and regulations. In the past, cryptocurrency exchanges rarely requested KYC information. As the price and interest in cryptocurrencies increase, crime concerns in the area of money laundering and other illicit activities have also come under scrutiny.
In 2001, KYC verification was introduced and consolidated in the Patriot Act. However, the law did not go into effect until after the 9/11 terrorist attacks. The goal of KYC regulations was to curb illicit activities and flag any suspicious behavior as early as possible. Cryptocurrency exchanges use this data to track transaction patterns, to ensure that money laundering and terrorist financing do not occur, for example.
Without KYC verification, a cryptocurrency exchange can be held liable when a user manages to commit a crime, because they did not do due diligence. Therefore, major exchanges prefer to remain compliant with anti-money laundering (AML) regulations.
However, KYC and AML do not mean the same thing.
What is the difference between KYC and AML?
KYC (“Know Your Customer”) requirements are just one part of a broader term commonly called anti-money laundering (AML). The AML concept encompasses a wide variety of regulatory processes designed to curb money laundering. Other AML processes include software screening, records management, and criminalization. KYC verification is simply an AML process that involves verifying identity and improving due diligence.
KYC, AML verification and all other processes established by regulators make it difficult for terrorists and organized criminals to hide their illicit activities, so that they cannot make funds acquired through illegal means appear legitimate. However, while this is an advantage, some members of the cryptocurrency community are divided on whether or not exchanges should make KYC compliance mandatory. The argument is that KYC and AML regulations are against the concept of decentralization.
How does KYC verification affect decentralization and anonymity?
One of the most attractive features of cryptocurrencies and blockchain technology is decentralization, meaning that no single authority has ultimate control of the system. Instead of a single database, transactions on these blockchains are stored on numerous computers around the world via peer-to-peer nodes. Therefore, KYC requirements make cryptocurrency exchanges equal to traditional financial institutions by giving power to a centralized authority.
For users concerned about the spirit of anonymity on the decentralized blockchain, losing anonymity is a high price to pay, especially when they submit their KYC data to centralized cryptocurrency exchanges. Although cryptocurrency exchanges promise to treat users' private information with care, many people prefer to remain anonymous and take no chances. A fear that is not unfounded, since many exchanges still do not have robust KYC systems to secure consumer information.
In fact, there have been reports of hackers obtaining cryptocurrency users' KYC information by exploiting loopholes in exchange software. Binance is one of the few exchanges that have a secure and dedicated system for collecting and managing KYC data.
Binance's Responsibility and Obligations Regarding KYC
Binance is the largest cryptocurrency exchange by market capitalization in the world. Therefore, it is committed to ensuring compliance with KYC regulations. KYC verification not only protects the exchange, but also provides an additional layer of security for each user's account, while allowing them to enjoy unrestricted use of Binance services.
Advantages of verification on Binance: enjoy improved levels
One of the main advantages of KYC verification on Binance is that users enjoy an improved level with lower fees and higher withdrawal limits. While unverified users can only withdraw a maximum of 0.06 BTC per day, those with verified accounts can withdraw up to 100 BTC per day.
Please note that KYC verification is primarily reserved for users who opt for credit and debit card transaction options. Those who want to make large transactions regularly will also benefit from completing their KYC details on Binance. On the other hand, people who do not complete their verification may encounter some problems withdrawing funds from their Binance accounts. Therefore, Binance encourages all users to complete the KYC process as soon as possible.
How to perform KYC verification on Binance
At Binance, the KYC verification process is very simple. The following steps will show you how to verify your Binance account.
Visit Binance.com.
If you are a new user, you will need to create an account with your email address and password. The account creation process takes no more than five minutes. If you are already a user, simply log in with your details.
Click on “Identification”.
In the upper right corner of your computer screen, tap your profile avatar. That's your user center. You'll see a list of options immediately after your user details. Click on “Identification” to continue to step three.
Click "Verify."
On the next page, you will see a bold yellow button with the word “Verify.” This will begin the verification process. Please note that verification documents depend on your nationality. Therefore, after selecting your nationality, upload your ID, name, address, ID photo, zip code and any other information.
Complete the verification.
Confirm that all details submitted are accurate to ensure your verification is accepted. Complete the process and start trading. Alternatively, after completing the basic verification you can opt for an advanced verification method.
Binance has three levels of verification: basic, intermediate and advanced.
Submitting all your details for verification should take no more than an hour. Afterwards, you will have to wait for your verification to process.
Submit your KYC verification on Binance. If you don't have a Binance account yet, sign up to get started.
In summary
KYC verification is a crucial part of the fight against money laundering in the financial sector, including the cryptocurrency sector. These financial regulations help create a safe, crime-free environment for businesses to thrive. You may not enjoy complete anonymity during your cryptocurrency transactions, but Binance and other major exchanges are trying to remain KYC compliant to protect their users.
Are you ready to start your adventure in the world of cryptocurrencies with Binance?
Get started by signing up for a Binance.com account or download the Binance cryptocurrency trading app. Next, check your account to increase your cryptocurrency purchase limit.
Complete basic and advanced verification on Binance
After verifying your account, there are two main ways to buy cryptocurrencies on Binance using money: you can buy cryptocurrencies with Binance money using bank transfer or card channels, or buy cryptocurrencies with money from other Binance P2P sellers.
Disclaimer: Investing in cryptocurrency carries high market risk. Binance is not responsible for your trading losses. The above opinions and statements should not be considered financial advice.
For more information, read the following helpful articles:
How to complete identity verification?
How to complete identity verification to purchase cryptocurrency with a credit or debit card
How to buy cryptocurrency with a credit or debit card on the website and in the app
How to buy cryptocurrencies with bank transfer or cash
