KYC Explained: The Importance of Knowing Your Customer

KYC stands for Know Your Customer, which is a verification process used to confirm a customer’s identity during transactions, mostly for security and regulatory purposes. The process has been in place since the implementation of The Patriot Act of 2001 and is used to prevent money laundering, terrorism funding, and other nefarious activities. KYC is not exclusive to cryptocurrency transactions and has been used in other sectors like banking and telecommunications. AML (Anti-Money Laundering) is a similar process, but KYC verifications aim to identify the risk of doing business with a customer. Generally, to complete the KYC verification process, a customer needs to share a photo of an official government-issued ID, passport, or driver’s license, and a photo of themselves. Some verification processes may also ask for a photo of the customer holding a piece of paper with a handwritten phrase. Every country has its own regulatory body that handles the verification and regulation of KYC or similar systems. Crypto companies and organizations are making multiple solutions to the issue of clarity, and ISO (International Organization for Standardization) provides a visual roadmap of compliance standards to optimize the adoption of digital assets by regulated institutions. The major criticism of KYC in the crypto industry is that it goes against decentralization.