Understanding KYC in Crypto - What is it and Why is it used?

Today, the world of cryptocurrency is rapidly evolving, attracting both seasoned users and those taking their first steps into this space. Alongside the vast opportunities that cryptocurrency offers, you may encounter certain obstacles. One such challenge is the need to go through the KYC (Know Your Customer) procedure.

What is KYC?

KYC is a comprehensive identity verification process designed to confirm that you are a real person, not a fraudster or a scammer. This verification has become mandatory on most major crypto exchanges and financial platforms, as it helps protect users and maintain legal compliance. Let’s dive deeper into why KYC is so important and how it’s applied in practice.

Why is KYC Necessary?

Crypto exchanges need to avoid issues with regulatory bodies by being confident that all their users are acting in good faith. KYC allows exchanges to establish each user’s identity, reducing the risk of the platform being used for fraudulent purposes. This verification helps protect both the exchange and its users from potential threats.

How KYC Works on Crypto Exchange Platforms

The KYC process in crypto aims to verify the user's identity, thereby preventing illegal activities like money laundering, terrorist financing, and tax evasion. By implementing KYC, crypto exchanges add extra layers of protection for their users and comply with regulatory requirements.

Some exchanges allow you to create an account before completing KYC, but access to account features will be limited. For instance, users may not be able to buy crypto or withdraw funds until their identity is verified. In some cases, limits may also apply to deposit amounts until full verification is complete.

While the KYC procedure can vary across exchanges, it generally includes the following steps:

Providing Basic Information: Users need to submit basic details, such as full name, date of birth, and residential address. This information is used for initial identification and identity verification.

Identity Document Submission: The exchange platform requests a photo of a valid ID, such as a passport or driver’s license, to verify the data against official identification documents.

Advanced Verification (for Certain Cases): Some users may undergo additional checks, requiring them to send a selfie with their ID or provide other extra information. This is typically necessary for users deemed higher risk.

Following recommendations from the Financial Action Task Force (FATF), many crypto platforms apply a risk-based KYC approach, meaning that requirements may be more stringent for higher-risk users, while those with a low-risk profile face fewer requirements.

The FATF also advises crypto exchanges to monitor client activity on an ongoing basis, which includes:

• Screening for International Sanctions: To ensure no registrations from individuals or entities under sanctions.
• Screening for Politically Exposed Persons (PEPs): As these users may pose a higher risk to the platform.
• Monitoring for Negative Media Mentions: Exchanges are encouraged to check if users have been mentioned negatively in the media.

These measures provide exchanges with an added layer of security, helping to manage risks and maintain trust in the platform among users.

The Impact of KYC on Security and Trust in the Crypto Ecosystem

The cryptocurrency ecosystem is based on principles of decentralization and freedom, appealing to those seeking financial independence. However, this approach also introduces risks; the lack of regulation leaves platforms vulnerable to fraud, money laundering, and other illegal activities. This is where KYC comes in—a set of rules and processes that not only help identify users but play a key role in enhancing security and trust among all ecosystem participants.

Protecting Users and Their Assets

One of KYC's main goals is to prevent theft and fraud. When a platform requires users to verify their identities, it significantly reduces the likelihood of malicious actors using it for illegal purposes. For instance, a verified KYC account can better safeguard a user’s assets: in case of suspicious activity, the platform can quickly freeze the account, knowing who it belongs to, and thus prevent asset theft.

In this way, KYC serves as a “guardian” that reduces risks for users, making their accounts more secure. Knowing that the platform cares about the safety of their assets strengthens clients' trust.

Enhancing Trust in Platforms and the Industry as a Whole

Security is one of the key factors affecting the reputation of cryptocurrency platforms. When users see that an exchange or platform has implemented KYC and ensures transparency in its operations, it boosts their confidence in the service’s reliability. Trust in platforms that support KYC measures is higher than in those that prefer to remain fully anonymous, as KYC ensures that all participants have been vetted, reducing the risk of fraudulent actors.

Additionally, companies that adopt KYC demonstrate their compliance with international norms and standards, making them more reliable in the eyes of not only clients but also investors. Implementing KYC also enhances the reputation of the entire cryptocurrency industry, as it shows its willingness to self-regulate and adhere to security standards.

Reducing Risks for Partners and Regulators

For crypto exchanges aiming for long-term operations, implementing KYC is essential not only to attract clients but also to collaborate with banks, regulators, and other financial partners. Platforms with KYC gain more trust from regulatory bodies, as they comply with international standards and help combat financial crimes. This allows platforms to establish stable partnerships, simplify the process of depositing and withdrawing funds, and opens up opportunities for further development and integration with traditional financial structures.

Combating Money Laundering and Financial Crimes

The KYC process is a key element in combating money laundering and other crimes prevalent in traditional financial systems. Platforms that implement KYC do not allow anonymous transfers of large sums, making them less attractive to criminals looking to launder funds or finance illegal operations.

By doing so, companies can monitor suspicious actions and flag transactions that go beyond normal limits. This helps prevent the use of crypto exchanges for illicit purposes and protects legitimate users from potential legal and financial consequences.

When discussing money laundering, it’s also essential to cover another concept: AML, often seen alongside KYC.

What is AML?

AML, or Anti-Money Laundering, refers to a set of procedures and standards used by financial and cryptocurrency companies to prevent money laundering. AML means the platform must monitor user transactions and flag suspicious activity.

How KYC and AML are Linked

KYC and AML are interrelated systems aimed at protecting financial platforms and users from illegal activities, such as money laundering and fraud. KYC focuses on identifying the user, which allows the platform to collect essential data (name, date of birth, address) and verify that the account belongs to a real person. This step is crucial for AML processes.

AML extends control over user actions after KYC verification by monitoring transactions to detect suspicious activities. If a user’s behavior raises concerns (e.g., large transfers abroad), the AML system initiates additional checks. The key approach is risk monitoring: users with higher risk are subject to more stringent oversight and may undergo Enhanced Due Diligence (EDD).

By working in tandem, KYC and AML help platforms comply with international standards, such as FATF recommendations, and prevent financial crimes. Together, they form a comprehensive security system, safeguarding user assets and maintaining the platform’s reputation.

Example of KYC and AML Interaction on a Crypto Platform

Imagine a user who wants to sign up for a crypto exchange. First, they must complete KYC, which requires uploading an ID/passport and confirming their address. Once the data is checked and approved, the AML system begins monitoring their transactions on the platform.

If the user later starts making large transfers to foreign accounts, the AML system flags these actions as suspicious. Thanks to the prior KYC verification, the platform already has the necessary information to request additional explanations from the user. If the user cannot verify the legitimacy of their actions, the platform may block their account.

KYC and AML together enable platforms to maintain transparency and security, protecting users and preventing the illegal use of cryptocurrency services, such as financing unlawful activities.

Impact of KYC and AML on Multi-Accounting in Crypto

Multi-accounting in crypto refers to creating and using multiple accounts on one or several crypto exchanges. Many traders and arbitrage specialists use multiple accounts to improve their strategies and gain favorable conditions on various platforms. However, KYC and AML pose certain challenges for those who actively use multiple accounts.

Potential Challenges

Identity Verification for Each Account: KYC on every account forces users to repeatedly verify their identity. For multi-account holders, this becomes an issue, as the platform may detect similar data and block duplicate accounts.

Risk of Account Suspension: Multi-accounting often violates exchange policies, as it contradicts KYC and AML principles. According to these principles, each account should belong to a separate user with a verified identity. The platform may suspect a user of creating multiple accounts and block them if it detects identical IP addresses or documents.

Reduced Anonymity: Many cryptocurrency users value anonymity, but KYC and AML inherently restrict users' ability to remain anonymous.

However, even in today’s environment, this is not necessarily a problem, as some tools help bypass these challenges and safely use multiple accounts. Here are a few of them:

Anti-Detect Browsers: Anti-detect browsers like Undetectable allow users to hide device fingerprints and create unique profiles for each account. Platforms often track devices used to access their sites. If they detect multiple accounts registered from the same device or browser, they may link them and block all related accounts. Using an anti-detect browser helps prevent such associations, reducing the risk of being blocked.

Proxies: Using proxy servers allows users to change the IP address for each account, lowering the likelihood of detection by the platform. It’s essential to choose a reliable proxy service, as low-quality proxies can lead to account suspension.

programs: A special programadds an extra layer of security, allowing you to change your location and hide your real IP address. This is particularly useful if you manage multiple accounts from the same geographic area.

Tools used for KYC Verification

Let’s break down the programs and services that can assist with KYC verification:

1. Anti-Detect Browser

An anti-detect browser enables the creation of unique profiles for each account by altering the device’s digital fingerprint, allowing the exchange to perceive each account as registered from a new device. This type of browser ensures anonymity and conceals all technical data.

2. Proxy Servers

Using residential proxies and programs helps change IP addresses for each account, creating the impression that accounts are registered from different locations. These tools are commonly used to avoid IP-based blocking and prevent accounts from being linked by the platform.

3. Documents

Before starting the KYC process, users prepare a set of personal documents required for verification.

However, some unscrupulous users resort to so-called "drops"—individuals who provide their documents to third parties for KYC on crypto exchanges.

Such drop providers are usually found on crypto forums or private Telegram channels focused on the topic. There, users participate in discussions about KYC verification and share various tips and tricks.

Disclaimer : Using drop services directly violates crypto exchange policies. This information is provided for informational purposes only!

How the KYC Process Works

To give you a clearer picture, let’s go over how the KYC process might unfold on a crypto exchange, using the tools mentioned above.

The process typically involves the following steps:

1. Setting Up an Anti-Detect Browser

Usually, the first step is for the user to download an anti-detect browser and register on the service. Then, they create a new profile within the multi-account browser itself. Experienced users recommend ensuring the profile’s operating system matches the device’s OS. Separate profiles are always used for each account to prevent the exchange from linking them.

2. Connecting to a Proxy Server or special program

Next, the user connects each profile to a proxy. After confirming that the proxy IP addresses come from different regions or countries, or if using a special program, ensuring that the chosen server corresponds to the account’s listed location, they proceed to the next step.

3. Document Preparation

As mentioned before, using fake or third-party documents, like those obtained unethically, is illegal and not recommended. However, some users exist who rely on such documents for KYC verification, ensuring they meet platform requirements before submitting them.

4. Account Registration and Data Entry

With the help of the anti-detect browser, the user accesses the crypto exchange and begins the account registration process, entering all data exactly as it appears on their provided documents.

5. Waiting for Verification and Account Monitoring

After submitting their documents, the user waits for verification to be completed. This process can take anywhere from a few hours to several days, depending on the platform. During this time, users only log in to the account from the profile used during registration to avoid linking it with other accounts and prevent suspension.

6. Account Activity Monitoring

After successful KYC verification, users typically continue to use the anti-detect browser and proxies to manage the account. They also avoid logging in from different devices or profiles to avoid drawing attention from the platform.

Conclusion

With stricter control on crypto exchanges, KYC has become mandatory for all users, and these measures are likely to become even more stringent. For those working with multiple accounts, these changes pose additional challenges. However, using anti-detect browsers like Undetectable and reliable proxies helps bypass exchange security systems. These tools allow each account to be protected, enabling safe interaction with platforms.

However, it’s crucial to remember that working with multiple accounts always involves certain risks. The stricter the control from crypto exchanges, the higher the likelihood of account suspensions if KYC rules are violated.