KYC and cryptocurrency exchanges are essential and a requirement on almost all centralized crypto exchanges. That said, is it still possible for customers to purchase crypto without having to go through a crypto KYC process? Yes! However, these methods are far more complicated and risky.
Read on to find out more!
What’s KYC in crypto?
KYC is the process of exchanging information to verify your identity and prove that you are who you claim to be. Although primarily used by banks, insurance companies, and businesses in the finance industry, KYC verification has become important and even mandatory for financial organizations in a more conventional industry like the blockchain industry.
Why KYC is important
Cryptocurrency, as we know it, is decentralized and transparent. However, due to the transparency of blockchain and cryptocurrencies, crypto exchanges have become prime targets for hackers.
This transparency comes at a cost, making these exchanges vulnerable to attacks and money laundering. Criminals see cryptocurrency as a means of furthering their illegal activities and as a vehicle to launder money.
As a result, governing bodies have imposed KYC on cryptocurrency markets, requiring cryptocurrency platforms to verify their customers much like financial institutions. Following this, many exchanges have implemented KYC practices.
Users signing up on crypto exchanges have been subjected to the same rules as the traditional financial sector, which entail giving out personal information to be able to access certain services like purchasing crypto, trading, and making transactions.
Why is KYC mandatory for most crypto exchanges?
KYC is required since most crypto exchanges are now classified as MSBs (money service businesses) under federal regulations. While these businesses have always handled money in some form, initial market volatility led to lax rules around exchanges, especially as trading proved complex and frustrating for the general population.
However, increased market diversity and larger amounts of digital currency being traded have made crypto exchanges more mainstream, prompting government agencies to impose more strict regulations on these operations.
KYC and cryptocurrency: How KYC works?
Cryptocurrency exchanges require KYC to comply with Anti-Money Laundering (AML) regulations. So after you have completed the sign-up process for your desired cryptocurrency exchange, the next phase deals with carrying out KYC, which involves submitting an array of documents.
By verifying their customers’ identities, exchanges can help prevent criminal activity like money laundering and the financing of terrorism. Some of the crypto KYC requirements include:
- Full name.
- Date of birth.
- Residential address
- ID card, DL, or passport verification
- Face verification
- Document verification such as utility bills as proof of address, and
- Biometric verification.
How KYC is done
With the below-outlined steps, you can get started and complete your KYC in no time.
- After successfully signing up, a crypto exchange requests personal information along with a proof of identity document like an ID card, DL, etc. The client then submits all required information to the exchange.
- The exchange then validates the customer’s identity using the submitted documents from official databases containing the relevant information.
- The next step requires carrying out a selfie verification with your submitted identity document. Note that this might take a while for the exchange to get you verified depending on the exchange.
- The exchange then determines the client’s risk profile which helps it assess whether the client has a high risk of money laundering or any other criminal activity.
- Then if everything is in order the client can begin to carry out activities on the cryptocurrency exchange. If not the client may be denied access to the exchange.
KYC and cryptocurrency: Crypto KYC companies
Here is a list of KYC and AML companies that are helping build solutions in the blockchain/crypto space, making it safer and more secure for users. Some of the top KYC companies include:
Chainalysis
Chainalysis is anti-money laundering software for businesses that deal with securing cryptocurrencies. The software company was founded in 2014 and headquartered in New York, USA.
Among their offerings are risk and fraud reduction, compliance tools, KYC, AML, and transaction monitoring. They have provided services to various government agencies that deal with financial and other related criminal activity.
Bitfury
The Bitfury Group is a leading full-service blockchain technology company as well as a private infrastructure provider for the blockchain ecosystem. It is based in Amsterdam, the Netherlands, and was founded in 2011.
They develop and deliver both software and hardware solutions necessary for businesses, governments, organizations, and individuals to securely move assets across the blockchain, with a mission to make the world more secure and trusted through the use of AI, blockchain, bitcoin, and high-performance computing.
They provide a variety of services, which include a blockchain-as-a-service solution, Exonum, that is designed to help governments and companies integrate blockchain into their operations.
Blockpass
Blockpass is a RegTech company based in London, United Kingdom, and was founded in 2017 to deliver KYC and AML software-as-a-service. The company is versatile and not restricted to, the crypto industry.
Using Blockpass, individuals can create a self-sovereign identity that they can use to onboard with any service that’s connected to the Blockpass marketplace. For organizations, Blockpass allows for easy and quick KYC and AML screening.
Which crypto exchange does not require KYC?
Most of the best crypto exchanges follow strict KYC (Know Your Customer) protocols, to comply with local legislation regarding AML (anti-money laundering) regulations.
Implementing KYC is useful for combating crime, but it can be a hassle for those who simply want to trade anonymously or who do not wish to upload their ID or other sensitive details online.
Many No-KYC exchanges allow crypto investors to operate anonymously without revealing their personally identifiable details to crypto exchanges. This displays some of the best Non-KYC crypto exchanges
Paybis
Paybis is a non-KYC decentralized exchange that supports over ten cryptocurrencies. It’s a liquidity service because it does not store cryptocurrency. Without completing KYC, you can trade coins like Binance Coin (BNB) or USD Tether (USDT).
It supports fiat currencies such as US Dollars or the Euro. With up to nine languages, it provides users from various nations with convenience. Paybis’ interface is easy to use for new and experienced traders. It retains zero limits on trading. Only your ID is needed for any transaction on the exchange.
Access to various exchanges is made possible by the exchange. Your anonymity on the exchange is increased by the connection to a hardware wallet. Compared to conventional crypto exchanges, it occupies a distinct niche.
BaseFEX
BaseFEX is a non-KYC cryptocurrency exchange that focuses on trading derivatives. It provides trading in futures using Bitcoin (BTC). You can use it to access contracts with high leverage across all asset classes. It is a completely decentralized exchange that enables KYC-free trading.
On BaseFEX, leveraged contracts are also accessible. Except for contracts settled in BTC and USDT, it can be used with any cryptocurrency. BaseFEX offers derivatives with a 100X maximum. Users find it very appealing because of its low trading fees.
BaseFEX scans and stops instances of market manipulation on the platform. It has powerful servers that can handle the high trading volume and speed up transactions. It is one of the best non-key exchanges that has an easy-to-use API. The interface has easy navigation and access to different data types.
BaseFEX stores all its assets in cold wallets for security. Hackers won’t compromise your crypto coins. Its lack of verification is attractive to users who want to trade crypto without KYC.
LocalCryptos
LocalCryptos is an Ethereum-based Non-KYC crypto exchange. It is one of the best anonymous cryptocurrency exchanges because all you have to do is register your trading account without having to verify your identity.
Your wallet’s private keys are under your control, so the exchange cannot access your money. The exchange uses a P2P framework to let you trade crypto without KYC. It has a sizable community that engages in the marketplace.
P2P enables the trading of cryptocurrencies such as Bitcoin (BTC), Dash (DASH), Litecoin (LTC), Ethereum (ETH), Bitcoin Cash (BCH), and others. The community can vote on potential new coins for P2P trading on LocalCryptos.
As a non-custodial exchange, it charges maker/taker fees. Regardless of whether you complete the transaction, its escrow account will charge a percentage. You are allowed to keep up to five wallets that correspond to the supported trading coins.
Can you trade crypto without KYC?
There are still pools of exchanges that do not require KYC. However, crypto users who are high on privacy continue to seek Non-KYC exchanges despite the risks it poses. Some of these include:
- Liquidity: Non-KYC exchanges often have low liquidity than KYC exchanges. This is due to the smaller user base on these exchanges making it difficult to find buyers when you want to trade resulting in higher fees.
- Fees: Non-KYC exchanges often charge higher fees than KYC-enabled exchanges due to lower liquidity and many other factors.
- Security: it’s a known fact that Non-KYC exchanges are less secure than KYC exchanges. This is due to their weak AML procedures which makes them vulnerable to cyber attacks, hacks, etc.
So while it’s possible to trade crypto without KYC, it is not advisable by AlteBlock, as we strictly warn against transacting on Non-KYC exchanges. However, when using an exchange that doesn’t require KYC, it is important to take extra measures to ensure your safety.
Is KYC safe?
Exchanges will be easily exploited if KYC is not implemented; thus, incorporating a KYC process in exchanges is critical, as it was designed to prevent financial crimes such as hacking and cyber attacks from bad actors.
Exchanges prevent these unfortunate events by requiring users to submit their personal information, such as an ID card, DL, SSN, and more, so as to weed out the bad actors and keep their platform safe and secure.
Although it goes without saying that the KYC process has its flaws, in the sense that it can sometimes be time-consuming and frustrating for users, there’s also a risk that if a hack is successful, user information can be stolen.
Overall, the KYC process should be generally accepted as a necessity to transact in crypto exchanges, though it might not be perfect, and it’s one of the ideal ways to keep cryptocurrency exchanges safe.
KYC and cryptocurrency: Bottom Line
As the focus shifts to cryptocurrency markets, KYC is of the essence, as it is an essential criterion that cannot be overlooked as pressures to conform to KYC standards increase. This helps industries, be it finance or blockchain, keep tabs on their clients, which further helps reduce cybercrime and effectively serve clients.
