Cryptocurrency value might fluctuate either up or down depending on the market conditions. However, this industry does not seem to vanish and shows that it has come to stay. As the cryptocurrency domain is quite large, it has turned into a place of interest for money laundering activities. One of the popular ways to end such illegal practices is to conduct a KYC verification process. Let us dig in to learn more.
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Definition Of KYC
KYC plays an important role. Know Your Customer (KYC) is the process of collecting users' information. Mainly, KYC helps avoid identity theft and forgeries in a company.
Financial institutions will initiate KYC whenever a new user creates an account, applies for a loan, makes investments, and does several other tasks. During these processes, the customer has to provide solid identity proof. Then, the exchange will conduct identity verification to ensure the authenticity of the user profile.
*Benefits Of KYC In A Crypto Exchange
Reduced Scams *
The foremost goal of KYC is to eliminate scams and fraud in the network. Exchanges can achieve high scam-resistance systems by conducting robust identity verification.
Enhanced Market Stability
Potential criminals can take advantage of the notoriously volatile nature of the crypto market. However, if identity verification through KYC is carried out in the initial stage, those criminals cannot manipulate the market. Thus, we can enable stability and can also improve the market value.
Improved Trust & Transparency
First of all, when a user agrees to provide their personal information to an exchange, it represents their trust in the platform. Also, they will be willing to utilize the exchange’s service for a prolonged period.
*Prestige Damage Control *
The type of exchange that performs KYC is a centralized exchange. Automatically the platform will be the custodian for the customers' wallets. Therefore, when a criminal attempts a hack, the exchange platform will instantly freeze the funds and maintain its reputation.
KYC is a method designed to enhance the security of an exchange platform against terrorism financing, money laundering, and others. Even though it is not a completely safe method, it still remains a popular way to curb financial crimes.