A crypto KYC onboarding procedure is broken down into steps.
In 2023, crypto KYC has grown much more widespread. This is a result of crypto firms becoming a more prominent part of the financial system and the globalization of words like BTC, ETH, and NFTs.
Virtual asset service providers, or VASPs for short, have been essential to the development of the cryptocurrency industry. As cryptocurrency exchanges and wallets proliferate, so are new ways to utilize virtual assets unlawfully.
Money launderers are notorious for their ability to quickly adjust to changing financial paradigms, and this is certainly true of cryptocurrency.
Governments around the world are attempting to subject providers of virtual asset services to AML legislation due to sophisticated new ways of exploiting virtual assets (anti-money laundering).
Consequently, having Know Your Customer (KYC) procedures become necessary as a result of stated legislation.
What Does KYC Mean for the Future of Crypto?
When we talk about KYC data, we’re talking about the information that Virtual Asset Service Providers collect from their clients during onboarding and transactional processes. Due diligence is performed as a result of process compliance with the relevant regulatory framework, specifically as it relates to customer due diligence (CDD).
The straightforward goals of KYC are to identify customers and execute a verification process before allowing them access to a service or to complete a transaction.
What Is The KYC Process?
The laws governing cryptocurrencies might vary greatly between jurisdictions, and it’s critical to realize that clients will be asked to provide various kinds of information.
The full name, date of birth, and residence address of a client are often the very minimum KYC information gathered.
Government-issued documents that the client must also supply are cross-checked against the data.
Steps in the Traditional Crypto KYC Onboarding Process
A KYC onboarding process has various steps, which obviously vary based on the organization doing it and the country in which it operates.
Onboarding often begins with the identification phase, during which the client provides their personal information. Typically, the client is asked to supply a photo of the government-issued ID.
To verify the legitimacy of the said document, it is examined for problems, errors, and other discrepancies. The information on the questioned document is also cross-checked against information provided by users.
It will be assessed if the client is presently situated in a high-risk nation based on the address.
The user must typically demonstrate their actual presence before moving on to the risk scoring
the stage when they are assigned a risk category based on the results of the entire examination.
What Different Kinds of Crypto KYC Checks Exist?
To put it simply, KYC processes can be either manual or automated.
Both choices offer advantages and disadvantages.
Contrary to computerized checks, manual ones are substantially slower. Additionally, because human involvement increases error rates, they are more expensive and a little more prone to mistakes.
Automated KYC procedures are renowned for reducing expenses while accelerating onboarding.
In order to compare the provided data and documents to templates, the procedure is designed to extract data from the documents users give.
Why Is KYC Required for Crypto Companies?
Most jurisdictions normally require a KYC check. As a result, customers cannot purchase cryptocurrency or withdraw money prior to completing and passing a KYC check.
However, even putting legal requirements aside, being KYC compliant is tremendously beneficial for crypto businesses in many ways, as the transparency it gives helps fight fraud, inhibits money laundering and the financing of terrorism, and increases overall client and investor trust.
Should you interact with cryptocurrency businesses that operate without KYC?
Exchanges without KYC are typically decentralized and uncontrolled.
They typically emerge in nations with weak AML regulations (or almost non-existent).
The biggest concern associated with non-KYC platforms is the increased susceptibility of users to illicit activity.
The very nature of cryptocurrencies is their intrinsic decentralization. The adoption of KYC for cryptocurrencies appears to be inevitable given that it increases transparency while safeguarding the user.
As they seek AML regulations and legislation that further tightens KYC and cryptocurrency regulations combined, many nations have made their positions known loud and clear.
But as Web 3.0 approaches, the issue of decentralization and the intriguing new idea of online self-sovereign identification return (SSI).
Will regulators take that strategy into account when addressing KYC and cryptocurrency? That will probably continue to be the key inquiry.
Users and investors currently place the highest level of trust in crypto-related enterprises that assure AML compliance. While being fully compliant may be challenging, it seems to have significant advantages.