Understanding KYC: Why it Matters and How to Best Implement It

3 min readSep 23, 2021

Have you ever tried to buy cryptocurrencies from an exchange only to be denied because of KYC? KYC is a process that financial institutions and exchanges use in order to verify your identity. KYC allows the institution or exchange to know who they are dealing with, which helps minimize fraud. In this article, we will discuss what KYC is about and why it matters for cryptocurrency transactions.

What is KYC

KYC is the acronym for Know Your Customer. KYC helps financial institutions and exchanges identify who they are doing business with to minimize the risk of fraud. KYC has become more important as cryptocurrencies have grown in popularity because crypto transactions cannot be reversed like credit card or bank transfer transactions can be when a customer disputes a charge on their account.

This high-risk nature of cryptocurrency transactions leads to an increased potential for money laundering and other illegal activity which KYC seeks to prevent by identifying who you are before you engage in any transaction involving digital currencies.

Why does KYC matter?

Why does it matter? Like I said before, KYC allows an institution or exchange to know who they’re dealing with so that they can better protect themselves from fraudulent claims against them if something goes wrong. KYC also protects you from the potential of being scammed, because KYC helps identify who is doing business with you and what their reputation may be like.

KYC can vary depending on which institution or exchange it comes from but generally includes:

Supplying your name (or company)
Your address
Contact information for where to reach you at all times if there are any changes in status or transaction disputes that arise during a purchase process, etc.

In order to provide KYC information, many exchanges require that users use a scan of government-issued identification such as a driver’s license or passport along with an image of yourself holding up said document so they know how the person who completed KYC looks. KYC can also be provided in person at a physical institution, but this often requires the customer to show up in person and complete KYC on site.

Transaction security

KYC is important for transaction security because it helps protect exchanges from fraudulent claims if something goes wrong with a purchase process or other type of dispute. KYC protects you from running into scams that might charge your account without permission as well as identifying who does business with you before any transactions occur. KYC may vary depending on which institution or exchange you’re using so make sure to research what they require beforehand!

Additionally, with the increased interest from non-crypto players in this market, regulators are also paying more attention to crypto assets. As regulation becomes more relevant in the sector, KYC has turned into a major pillar supporting the long-term growth of this industry.

Final Thoughts

In conclusion, it is my opinion that we have already witnessed the global crypto market maturing, with companies at the forefront of this movement putting rigorous security measures in place to protect their customers in anticipation of what lies ahead.