KYC stands for “Know Your Customer.” It’s a standard in the investment industry that ensures investment advisors know detailed information about their clients’ risk tolerance, investment knowledge, and financial position. KYC policies are important to prevent identity theft, money laundering, financial fraud, and terrorist financing.
In the context of cryptocurrency, KYC procedures involve identifying and verifying the identity of the customers before they trade. Cryptocurrency exchanges usually ask for personal information like name, address, contact details, a government-issued ID, and even a selfie sometimes for KYC procedures. This helps the exchanges understand who is buying or selling the crypto and prevent illegal activities.
However, these practices are sometimes seen as controversial in the crypto community, as one of the initial attractions of cryptocurrencies like Bitcoin was the potential for anonymity. While KYC can help prevent illegal activity, it also means that users can’t remain anonymous. KYC procedures vary from one cryptocurrency platform to another, with some implementing strict procedures and others offering more privacy to their users.