What is KYC in crypto?

KYC stands for "know your customer." It is the identity check that banks, brokers and most crypto exchanges run before letting someone trade or move money. In crypto, it usually means supplying a name, address and date of birth along with a photo of a government ID.

Why do exchanges ask for ID?

The law requires it. Governments want financial businesses to know who their customers are so that criminals cannot easily move or hide money.

In the United States, the Treasury's Financial Crimes Enforcement Network (FinCEN) said in guidance issued in March 2013 that businesses exchanging virtual currency are money transmitters under the Bank Secrecy Act. That brings duties to register, keep records and file reports. Internationally, the Financial Action Task Force, the body that sets global anti-money-laundering standards, tells countries to license or register crypto businesses and to make them check customers, keep records and report suspicious transactions, as banks do. The guide to anti-money-laundering rules covers this in more depth. The details differ by country and change over time.

What does a KYC check involve?

• Personal details: full name, date of birth and home address.
• A photo of a passport, driver's license or national ID card.
• A selfie or short video, to show the person matches the document.
• Sometimes proof of address, such as a utility bill.
• For larger amounts, questions about where the money came from.

Many platforms use tiers, so more verification brings higher deposit and withdrawal limits. Checks do not end at sign-up. Exchanges monitor transactions and can freeze an account while they ask questions. Because the exchange knows who owns an account, KYC is also the main way activity on a public blockchain gets traced to a real person.

What are the criticisms?

Privacy is the main one. KYC leaves exchanges holding copies of passports and home addresses, and customer data held by crypto companies has been exposed in breaches. Leaked customer lists are then used for targeted phishing. Critics also say the checks shut out people who lack formal ID.

What are the risks of no-KYC venues?

Some offshore platforms, peer-to-peer markets and decentralized exchanges ask for no ID. That offers privacy, with trade-offs. A platform that skips the checks may be operating without a license, which leaves customers with little recourse if it freezes funds or disappears. Tax obligations apply whether or not a platform asks for ID.

Scammers exploit the idea of KYC too. A fake trading site may accept deposits with no questions, then demand a "verification fee" or "tax" before any withdrawal. That pattern is a hallmark of common crypto scams. A genuine KYC check never asks for a wallet's seed phrase, the secret words that give full control of the coins.