Before you can begin crypto trading, you must first verify your identity. When you open an account with a cryptocurrency exchange, you’ll usually be asked to complete the know-your-customer (KYC) process.
This is a standard form of identity verification required by major exchanges for anyone wishing to trade cryptocurrency.
The sooner you complete KYC, the sooner you’ll be able to buy and sell cryptocurrency. This post will explain what KYC is, how the process works, and alternative ways to buy cryptocurrency.
What exactly is KYC?
KYC stands for “know your customer” and “know your client” and refers to the process of verifying a customer’s identity. It’s most common among financial institutions and financial service providers, such as banks, stockbrokers, and now cryptocurrency exchanges.
The purpose of KYC is to ensure that a customer is who they say they are and to prevent illegal activities such as money laundering, terrorist financing, and tax evasion. If a cryptocurrency exchange does not perform KYC, it may be held liable for such illegal activities.
Although you may be able to open an exchange account without going through the KYC process, your account will be restricted until you verify your identity. The most likely restriction is that the exchange does not allow you to deposit money or buy cryptocurrency. It could also impose a limit on the amount of money you can deposit.
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How does KYC work?
KYC is handled differently by each cryptocurrency exchange. During the KYC process, you will typically be required to provide the following information:
- Date of birth
- Social Security number
- Physical address
Furthermore, most exchanges require a photo of valid government-issued identification. This can be a driver’s license, a state identification card, or a passport.
The exchange will use the requested information and a photo of your ID to verify your identity after you provide the requested information and a photo of your ID. Depending on the exchange and how busy it is, this can take anywhere from a few minutes to several business days.
In some cases, a crypto exchange may require additional verification. You may be required to provide proof of your physical address or a selfie in that case.
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Can you buy cryptocurrency without a KYC?
You can buy cryptocurrency without KYC, but it’s more complicated and potentially riskier than using a KYC-compliant exchange. Decentralized exchanges and Bitcoin ATMs are the most common ways to buy cryptocurrency without verifying your identity.
A decentralized exchange is one that is governed by no central organization. Decentralized exchanges are classified into two types: peer-to-peer marketplaces and automated market makers.
Peer-to-peer marketplaces allow buyers and sellers to post cryptocurrency offers on a single platform. It’s similar to Craigslist for cryptocurrencies. Here are a few examples of popular peer-to-peer marketplaces:
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Despite the fact that those platforms have security measures in place to prevent fraud, there is still the possibility of being scammed and losing money. Peer-to-peer marketplaces are riskier than centralized cryptocurrency exchanges.
AMMs allow you to trade cryptocurrency pairs, and their trade prices are determined by smart contracts. They provide trading through liquidity pools, which are pools of crypto funds contributed by users. AMMs that are popular include:
While AMMs do not require identity verification, you must have a crypto wallet with funds in order to trade. On these platforms, you cannot buy cryptocurrency with cash. Many users prefer to start by purchasing cryptocurrency with cash on a centralized exchange. They then transfer it to a crypto wallet and link it to an AMM to gain access to a broader range of cryptocurrencies.
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Bitcoin ATMs can also be found all over the world. These aren’t always limited to Bitcoin, despite the name. Some exchanges provide different types of cryptocurrency. Despite the high fees, these ATMs allow you to buy cryptocurrency in cash.
A critical component of cryptocurrency trading
KYC is a requirement on almost all centralized cryptocurrency exchanges. Buyers who prefer to remain anonymous have other options, including peer-to-peer cryptocurrency marketplaces and Bitcoin ATMs.
However, these options are less user-friendly than purchasing on a reputable centralized exchange. They may also increase your transaction fees.
It’s best to be ready to go through the KYC process with an exchange you’re interested in. Fortunately, it is simple and does not take long. Once you’ve finished it, you’ll be able to buy cryptocurrency with ease.