KYC AML Guide: the Clock shows the average reeding time of the blog07 min Read


KYC AML Guide: the Clock shows the average reeding time of the blogAugust 25, 2023

KYC in Crypto: Why is it Important for Crypto Exchanges?

Cryptocurrencies are considered to be the future of financial transactions worldwide. Due to secure networks, transactions take place abruptly and usually remain anonymous. This is one of the reasons crypto transactions provide opportunities for financial criminals to escape traditional KYC and AML regulations.

M Abd'al Bari

Research Associate

Cryptocurrency Crime Insights

Research shows that in 2021, a sum of illegal cryptocurrency transactions was found to be $14 Billion. In 2022, it was found that almost $10 Billion in cryptocurrency was held in illicit addresses. Despite this, in 2023 Cryptocurrency crimes dropped by 65% according to Reuters and the National.

With the rise of cryptocurrency theft & fraud, industries are more focused on making companies AML and KYC crypto-compliant to prevent financial fraud. Notably, these firms must determine the anonymous activities associated with cryptocurrency transactions. It takes place by implementing the most recent KYC regulations to know their customer better and in a trustworthy manner.

What is KYC in Crypto?

KYC crypto refers to a set of processes by financial organizations that are implemented to identify customers’ identities in the cryptocurrency ecosystem. The first phase of KYC is due diligence in Anti-Money Laundering and helps these companies recognize any risk associated with the client before onboarding them.

KYC is also required in cryptocurrency exchanges to supplement the implementation of AML regulations. KYC prevents financial crimes such as money laundering by identifying customers’ identities.

Money laundering in crypto refers to the concealing of the sources of money acquired in illicit ways. On the other hand, financial terrorism is the practice of providing financial aid to individuals or organizations involved in terrorism. Both of these acts fall under financial crimes and are considered extremely illegal which can pose a critical threat to global security.

Also Read: Crypto Travel Rule and its Role Against Money Laundering

How Does KYC Crypto Work?

KYC in crypto works the same as it works for other financial institutions. It is a 3-step process explained below.

KYC in Crypto

  • Customer Data Collection

Firstly, when the customer signs up for an account on a cryptocurrency service provider that requires KYC, their data is collected. The client needs to provide personal information including their full name, address, and government-issued identification. This information is utilized to verify the customer.

  • Verification Process

In the verification process, these service providers verify the data and compare it with the database information and other sources to confirm the customer’s identity. This step involves procedures such as checking ID documents against a government database, verifying addresses, and conducting background checks.

  • Customer Onboarding

Once the verification is complete and in case the company is satisfied with the customer, they approve the use of onboarding. And, the user is able to access their services.

Why KYC Crypto is Important?

Many cryptocurrency service providers are now moving towards implementing KYC compliance regulations despite the hurdles they might face during the process. This is because doing this can deliver numerous benefits not only to the organization but to the clients as well. However, KYC in crypto is essential in numerous ways:

Reduced Fincrimes and Money Laundering
  • It has been found that for more than 15 months, an astonishing number of people including 46,000 individuals have claimed that they have been victimised by crypto fraud. It resulted in a huge loss of over 1 billion USD.
  • Through KYC in the industry and conducting powerful identity verification procedures, the risk of money laundering can be prevented alongside maintaining the financial integrity of the firm.
Better Market Sustainability
  • The cryptocurrency industry is highly volatile & requires sustainable compliance solutions. It involves a high level of anonymity and shadowy transactions at a higher speed.
  • Integrating KYC crypto compliance standards with enhanced due diligence can play a pivotal role in sustaining the market and promoting its growth and revenue.
Reputational Damage Control
  • KYC practices in cryptocurrency help crypto exchanges to remain equipped with anti-fraud and anti-money laundering tools.
  • KYC-regulated crypto firms can rapidly take actions such as freezing anonymous accounts that might be involved in illegitimate activities.
Diminished Legal Risks
  • With the rapidly changing compliance norms and standards, crypto businesses now recognize the KYC regulatory practices to remain compliant.
  • These practices enable them to reduce identity theft or identity fraud, evaluate customer risks, and avoid money laundering practices by verifying customer information.
Increased Trust Among Users
  • KYC crypto is important because of the identity verification processes that help build trust-based relationships among customers & firms.
  • Customer Onboarding makes sure that the cryptocurrency exchange service providers are using proactive measures to protect their accounts.
  • These users are more likely to keep acquiring your services because of strong relationships with the company.

Read the latest News on KYC Crypto: Bitget updates KYC verification requirements for improved anti-fraud measures.

Bottom Line

Incorporating KYC crypto compliance standards or regulations is essential to prevent the industry from financial crimes such as money laundering. With the rise of technology, cybercriminals are becoming smarter and finding more sophisticated ways to commit crimes. Therefore, when cryptocurrency exchange service providers integrate a robust KYC (Know Your Customer) system, it delivers numerous benefits and makes them secure. To meet financial goals and prevent crimes, KYC compliance has become an indispensable cornerstone of modern business operations primarily in the crypto-realm.


KYC AML Guide: the Facebook share KYC AML Guide: the Linkedin share KYC AML Guide: the Twitter share
M Abd'al Bari
KYC AML Guide: the Linkedin share

Muhammed Abd'al Bari is a certified Research Professional of KYC AML Guide. Connect with Muhammed on LinkedIn.