Know Your Customer (KYC)

Know Your Customer (KYC), or Know Your Client, are regulations imposed by governments and regulatory agencies on financial institutions and services providers, that require them to identify and verify their customer’s identities.

Centralized cryptocurrency exchanges (CEX) exchanges in the U.S. and some personal wallet providers, for example, require you to provide not only your email address, but also your full name, proof of your address, a phone number, and a social security number, which are then compared to a copy of a government-issued ID, such as a valid driver’s license or passport.

Some institutions go as far as asking for bank statements or utility bills to confirm different parts of your personally identifiable information (PII)

The purpose of requiring KYC information primarily revolves around complying with anti-money-laundering programs that have been required by banks and other traditional finance companies and institutions for years.

KYC regulation is meant to benefit not only the government imposing the regulations but also the businesses, institutions, and individuals getting involved in the cryptocurrency ecosystem.

KYC is meant to increase trust between customers and the businesses they are doing business with. Businesses want to be seen as being proactive and security conscious of who they let on the network.

KYC helps to reduce the legal risk for businesses, as confirming individual and business identities reduce the possibility of legal challenges and regulatory penalties.

KYC helps keep away bad actors who might engage in suspicious or illegal activity.

Opponents of KYC state that it takes away from one of the key features of cryptocurrencies – anonymity.

Related Terms

Pseudonymity

In blockchain security, the pseudonymous nature of certain blockchains keeps a network user’s identity hidden from other network users while still linking all of the transactions made by that person to a pseudonymous identity that CAN be tracked by almost anyone.

Peer-to-Peer (P2P)

Describes the sharing of data or assets between 2 or more parties without any central authority making the transaction happen. P2P exchanges tend to offer transactions that are censorship resistant, cheap, private, and secure.

Anonymity

It keeps your identity hidden, you stay anonymous, and allows you to send or receive digital assets with anyone that has a crypto wallet address, anywhere in the world, without a middle man like a bank to question what you’re sending, how much you’re sending, to whom you’re sending it and why.

Geoblock

Geoblocks implemented by crypto services like cryptocurrency exchanges usually block the IP addresses of large collections of users from connecting to their websites or mobile applications. These blocks are accomplished by comparing a user’s IP address to a list of allowed and not allowed IP addresses. IP addresses identify a person’s location in the world, and crypto services can use that information to block specific locations by country, region, state, city, or even just an individual IP address.

Dark Web

A collection of several thousand hidden websites that are “online”, where someone can buy drugs, guns, stolen identities, social security numbers, hacked website credentials, and all matters of other illegal items using cryptocurrencies like bitcoin (BTC). Silk Road is the most famous Dark Web online marketplace that gained notoriety after being shut down by the FBI in 2013.