KYC

KYC, short for Know Your Customer, is the process by which a financial service verifies the identity of its users before letting them transact. In crypto, this typically means a centralized exchange asks new customers to submit a government-issued ID, a selfie, and sometimes proof of address before they can deposit fiat currency or withdraw funds above a certain threshold.

The purpose of KYC is to link accounts to real people so that regulators and law enforcement can trace illicit activity such as money laundering or fraud. For example, someone opening an account at a major exchange will usually photograph their passport and complete a liveness check in the app; only after approval can they buy crypto with a bank transfer. Requirements vary by jurisdiction and by the size of the transactions involved, with stricter checks for larger amounts or higher-risk customers.

A common misconception is that KYC applies to crypto itself; it applies to the businesses providing services, which is why self-custody wallets and most decentralized protocols do not ask for ID. KYC is closely tied to AML (anti-money-laundering) rules: KYC is the identification step, while AML covers the broader monitoring and reporting obligations. Users weighing exchanges often encounter KYC as the trade-off between regulatory protection and personal privacy, since verified platforms hold sensitive identity documents that must themselves be secured.