The world's financial systems are being turned upside down by cryptocurrencies, which use blockchain technology and offer new goods and services. You can trade cryptocurrency directly with other blockchain users or through crypto exchange platforms that let you trade digital tokens and real money.
Cryptocurrency transactions are private and only take a few seconds because the blockchains are encrypted.
More than ever before, cryptocurrency exchange development services have to meet their AML/CFT requirements because governments all over the world are paying more attention to them. KYC measures must be put in place so that cryptocurrency exchanges can find out who their customers are and how they are using their services. Because of worries about privacy, this is even more important.
What does KYC mean in the cryptocurrency world?
KYC rules require businesses to collect and verify important information about their customers so they can get a full picture of who they are and stop identity theft and fraud. Customers of financial institutions (FIs) often have to go through Know Your Customer (KYC) procedures when they open new accounts, apply for loans, make investments, or do other important things. As part of these safety measures, identification information like driver's licenses, SSNs, and other financial statements may be asked for, checked, and stored in case an audit is done.
Others say that bitcoin exchanges shouldn't have to follow the same rules as regular banks because that would make it harder to stay anonymous. Only if they find something suspicious do they stop the KYC checks. This is why some exchanges ask customers to give information about who they are when they open an account. People in the United States who don't want to follow KYC laws can do other things.
Even with these efforts, the growing cryptocurrency industry and wider acceptance of cryptocurrencies almost guarantee that Know Your Customer (KYC) rules will apply to exchanges and lead to tighter regulation.
How does the Know Your Customer (KYC) process work in cryptocurrency?
In order to meet KYC rules, cryptocurrency exchanges must do the following:
- In the first step, they collect PII about their customers, like their full name, date of birth, and address.
- To make sure the person is who they say they are, this information must be checked against a utility bill or a government-issued ID, like a passport.
- This is the last step, where you compare the customer's ID to a list of people who have been blacklisted or are politically vulnerable (PEP).
By following these steps, you can figure out how much of a risk each client has for money laundering and other financial crimes involving virtual currency. On a bitcoin exchange, the customer can do certain things if everything works out.
Also Read Here: How To Create A Crypto Exchange Development Platform
Pros of Know Your Customer in Crypto
Crypto exchanges can make a lot of money if they stay on the right side of the law, even though this means they have to change how they do business and deal with problems like:
Make things more open and trustworthy
When users' identities are checked, things are clearer and clients feel more confident. Customers are more likely to stay with your crypto exchange if they trust its proactive and preventative security measures.
Reduce the number of possible scams
In 2017, there were more than 80,000 cases of fraud involving cryptocurrency in the United States. This is 24,000 times more than in 2016. By making sure someone is who they say they are, a business or organization can cut down on fraud and improve its reputation.
Eliminating legal risk
Organizations can stay ahead of the curve by putting in place good KYC processes. Then, instead of chasing after the latest changes in regulatory expectations, they can focus on improving conversion rates, making transactions easier, and making sure they are in line with constantly changing international rules. By doing their due diligence in the Know Your Customer (KYC) area, a company can reduce the risk of legal disputes or regulatory fines.
Stability in the world of digital money
People talk a lot about how unpredictable the cryptocurrency market is. Part of the reason for this is that anonymous transactions can be shady or even against the law. By making it easier to verify people's identities as part of the Know Your Customer (KYC) process, the market can become more stable and its value can go up.
Make sure that the personal information of clients is safe
Know Your Customer (KYC) in crypto is a quick and simple way to find out who someone is. But businesses must also make sure that all customer information is handled and stored safely. Consumer confidence is also boosted when a market has strict rules about anonymous exchanges and transactions that can't be changed, especially if the market has been volatile in the past.
With Persona, your business is already GDPR and CCPA compliant. You don't have to worry about someone stealing or sharing your information. But because we have high security standards, you can still get to it whenever you need to in an easy and reliable way. When it comes to KYC, crypto businesses like IDV solutions that cover the whole world, make it easy for users, are automated, and offer different types of verification for different risk profiles and use cases. Persona is the only identity platform that gives organizations the building blocks, automation, and orchestration tools they need to set up a full Know Your Customer (KYC) programme.
KYC is becoming a bigger deal for regulators all over the world as the number and speed of cryptocurrency transactions rise. So they don't fall behind, crypto exchanges need to move quickly to build and integrate the best KYC systems.
Get in touch with a reputable Cryptocurrency Exchange Development Company if you want to build a cryptocurrency exchange platform that works with Know Your Customer (KYC) checks. Even though rules are always changing, automated Know Your Customer (KYC) processes help crypto exchanges stay flexible. KYC software can help cryptocurrency exchanges keep up with changes in rules and make important decisions quickly based on risk. Thanks to machine learning algorithms, exchanges may also be able to do more in-depth analyses of historical data to find vulnerabilities or deviations from expected financial behavior that weren't known before.