KYC verification in crypto exchanges: Why it may be necessary and how to pass it

Have you ever been surprised or even annoyed by crypto exchanges needing your ID when you are trying to set up an account? Or you faced additional checks when the support reached out to you directly, asking for information on where the money in your exchange account came from?

If your answer is yes, this means you’ve already gone through a crypto exchange KYC process. If not, you’ll likely face it in the future when you want to buy or sell crypto, so it’s still nice to know and understand what you’ll be going through and why it matters.

What is KYC in crypto exchanges?

KYC (Know Your Customer) is a set of procedures designed to verify a user’s identity before proceeding with their transactions. This process is not exclusive to crypto exchanges; you definitely passed KYC when opening a bank account, setting up internet and mobile plans, and in many different cases throughout your life.

Usually, the crypto KYC process includes the following steps:

In some cases, crypto KYC verification steps differ. For example, some exchanges ask you to provide proof of funds when your transactions reach a certain threshold.

Why KYC is required in crypto

As mentioned earlier, the KYC process is not exclusive to the crypto world. More to that, it is usually a requirement.

The main reason why KYC is used on reputable crypto platforms worldwide are regulations designed by the Financial Action Task Force (FATF) and local authorities. These regulations’ major goals are to prevent fraudulent actors from money laundering and financing terrorism.

FATF itself, for example, has over 200 international jurisdictions committed to its recommendations, ensuring worldwide compliance with the KYC policy. Knowing that, if a crypto exchange enters the market, it has to implement KYC crypto compliance procedures.

But KYC crypto regulations are not just annoying; they also protect you from being defrauded.

As you know, unlike in traditional finance, each transaction on blockchain is irreversible unless the chain itself has some turnback mechanisms. If you get scammed or someone drains your crypto wallet, you wouldn’t be able to do anything. With KYC and AML policies, however, there’s a chance of learning who took your money and getting it back if the receiving wallet is also based on a crypto exchange.

Another upside of these policies is that they prevent traders from maliciously affecting crypto prices. Just like in traditional finance, it is still possible to manipulate the crypto market in your favor. Someone could put an order to sell large volumes of a specific token and push its price down, forcing others to sell the token at a decreased price. This would affect all other players on the market and shouldn’t happen. With KYC and AML policies, it’s easier to prevent such transactions.

How the KYC crypto process works

Earlier, we already described the major steps in the crypto KYC process. Now, we will dive into it a bit deeper, describing some possible scenarios that may occur when you’re just setting up or already actively using your crypto exchange account.

The basic steps remain the same:

• Register an account on an exchange.
• Upload your identity document.
• Take a selfie or a video to confirm your identity.
• Wait for your application to be approved.

The whole process is easy and user-friendly. Sometimes, the procedure (or specific steps) can be done even on a smartphone.

Occasionally, you might be asked to provide proof of funds. The criteria by which these requests occur vary between crypto exchanges and are kept confidential, but there’s nothing to worry about. All you need to do is provide the documents that state the origin of your income. The exchange support is usually willing to assist you in case you have any questions regarding such requests.

Keep in mind that crypto exchanges also operate under data privacy and customer protection regulations. All the personal data you upload is encrypted and stored securely. More to that, sometimes it won’t even reach human operators. Some services use advanced image recognition systems that process your pictures and papers, speeding up the process and making the system even more fault-proof.

Another thing you should know: if you aren’t prompted to pass a crypto exchange identity check right away, you still might need to face it in the future. Some crypto exchanges have a tiered account system, locking bigger daily transaction volumes and features like fiat transactions behind higher account tiers. These tiers are usually earned by completing different stages of KYC checks and do not require any financial investments or subscriptions.

How to pass KYC smoothly

Ready to pass the KYC? Here is a short KYC verification guide to ensure your verification goes smoothly:

Choosing the best KYC crypto exchanges

Not sure which crypto exchanges can be trusted with your data? We've got your back. Here are the criteria you should consider when deciding:

• Reputation and licenses. Make sure the crypto exchange of your choice has a good reputation and is licensed to operate in your region.
• KYC processes. A good crypto exchange will also make the procedure quick and simple.
• Security and privacy. Make sure the crypto exchange you choose follows local and global data security and privacy standards. The stricter the better.

If you’re not sure where to begin, take a look at our list of the best crypto exchanges. We make those with reliable exchanges that users can trust.

Conclusion

KYC is a standard for compliance and security in any financial institution, be it a bank or a crypto exchange. While it might seem inconvenient and even annoying, the benefits both you and the exchanges gain heavily outweigh the downsides.

Looking for a good crypto exchange? With SwapSpace, it’s easy as pie. Check crypto offers on different platforms, track exchange reputations and live feedback, and pick the one that fits you best.