KYC and the world of digital currencies

What is KYC?

Know Your Customer, or KYC is one of the most important measures against financial crime and money laundering. With the use of KYC, it can be proven that customers are who they claim to be. As a result, financial service providers can manage their risks. If there is a problem with a user’s KYC, the account will be suspended or the business relationship will be terminated. With those said, KYC is the mandatory process of identifying and verifying the client’s identity when creating a new account and this process is performed periodically over time.

The presence of these elements makes the financial service require them for the verification of their customers. These measures serve as an important element in the fight against Anti-Money Laundering & Combating the Financing of Terrorism (AML / CFT) compliance efforts to combat financial crime. Traditional institutions and banks are updating their KYCs to prevent money laundering and prevent criminal activity in the financial markets.

What is eKYC?

eKYC is an all-electronic authentication process. Electronic Know your Client is a process launched in India that electronically requests all of a person’s identity information. In this way, it can be used for online authentication using this digital authentication system. This possibility in the event of a coronavirus outbreak can well meet the needs of customer authentication and all authentication services are done electronically. The combination of eKYC and additional biometric can also be very useful in identifying real and fake identities.

KYC and Digital Currencies

KYC can also be used in digital currency transactions. As you know, many parts of digital currency transactions are used for the laundering of illicit funds and tax evasion and are often used for ransomware. But there are three reasons why KYC can be useful for digital currencies.

The first reason is irreversible transactions.
  • As you know, when you send your bitcoin to an address, your transaction is confirmed and registered on the network. In this case, you can no longer get your bitcoin back. If you enter the wrong address, you cannot change the address after sending it. Also, if hackers change the address (as explained in a previous article), you will not have access to any admin to help you.
  • The second reason is wallets without KYC. Digital currencies are unrecognizable. Unlocking digital wallets does not require any personal identification, and this can be dangerous. If using KYC can verify the identity of the user when logging in or performing transactions.
  • The last reason is taxes. Taxes and the legality of crypto are unclear in many countries and there is no specific law for them. So using KYC, in this case, can also help individuals and countries.

However, there are objections that make the use of KYC inappropriate for digital currencies. They believe that the use of KYC destroys the decentralized identity of digital currencies. KYC checks are also collected from the customer and imposed on the customer through fees. Or many people do not have a fixed address or proof of identity and cannot verify their information.

Anonymous Identity Verification

This method is used in the world of blockchain and can be a good innovation for this industry. Using tools such as anonymous identity verification, users can verify their identity online. They can then trade their verified information into new vendors or platforms.

KYC checks seem like a limitation but have many benefits for digital currencies. They can provide fight against money laundering and other crimes and provide a lot of security so that you can trade your digital currency with more security. So KYC can turn digital currency into a critical cornerstone of good business and change the future of the digital currency industry.

Subscribe our latest updates

Don't miss out. Be the first one to know when a new guide or tool comes out.

Subscription Form

Support Us ❤

Creating learning material requires a lot of time and resources. So if you appreciate what we do, send us a tip to bc1qm02xguzxxhk7299vytrt8sa8s6fkns2udf8gjj. Thanks!