When cryptocurrency gained mainstream prominence in the early 2010’s one of the biggest selling points was relative anonymity and freedom from government regulations.
Looking back now, we observe that this is both a blessing and a curse. It quickly became the go-to tool for financing crime and facilitating dark web activities like piracy and money laundering.
According to a Chain Analysis’ report published by Forbes, Crime-related activity represented about 2.1% of total Crypto transactions in 2020, worth over $24bn dollars.
Governments and the leadership of crypto exchanges moved swiftly to do something decisive about the spate of cryptocurrency in financing and facilitating crime. One of the ways that they came up with is KYC and anti-money laundering requirements for users.
Before we dive right into it, let’s examine what Crypto Exchanges are, and what their roles are in the (Know Your Customer) KYC cryptocurrency process.
What are Crypto Exchanges
Crypto exchanges are platforms where users buy, sell or exchange cryptocurrencies for other virtual currency or traditional fiat currency.
They provide a cryptocurrency marketplace for buyers and traders to link up and trade seamlessly across borders.
Today, there are dozens of crypto exchanges and each one has distinct features that endear them to their various users, traders and investors. Some act as a p2p crypto marketplace, while others pose as an altcoin trading platform.
One of the key factors that users consider before choosing a crypto exchange to trade on is the onboarding KYC procedures.
While some crypto exchanges have strict rules, on the other hand, even some of the best altcoin trading platforms may allow users to trade crypto without KYC.
What is KYC
“Know Your Customer” (KYC) and anti-money laundering (AML) are compliance procedures under the Bank Secrecy Act. the process involves financial institutions collecting identity credentials from new customers during their onboarding process.
Crypto exchanges have faced immense pressure from governments and regulatory agencies to incorporate KYC into their modus operandi.
Reasons for KYC in Crypto Exchanges
KYC is a preventative measure of combatting crime way before it happens. It is aimed at clamping down on money laundering, terrorism funding and other criminal behaviour like fraud by making it easy to trace transactions to their origin.
With KYC and AML, crypto exchanges seek to establish a system to achieve the following;
- Effective transaction monitoring
- Risk management
- Customer identification.
These policies protect crypto exchanges from various transactional and regulatory sanctions. It protects the sanctity of the real-world economy by making society safer and lastly, it protects users’ crypto assets from fraud by adding an extra layer of security and authorization.
What is the Standard KYC Procedure for Crypto Exchanges
All over the world, financial institutions divide their KYC and AML policies into two standard layers of risk mitigation. These layers are:
- Customer Due Diligence (CDD)
- Enhanced Customer Due Diligence (EDD).
Customer Due Diligence is a basic procedure to profile and identify new and potential users.
Enhanced Due Diligence is conducted on customers that are perceived as higher-risk through additional questioning and profiling. Factors that trigger Enhanced Due Diligence risk profiling are:
- Transaction volume.
- Transaction frequency.
- Political influence or exposure.
- The criminal history of an individual etc.
Most crypto exchanges seem to follow this CDD and EDD pattern. Ultimately, each exchange is free to decide the level of identity information that they require from their users.
They collect more data as users seek to raise their eligible transaction volumes. Exchanges also use incentives to encourage users to provide more information about their identity.
Crypto Exchanges offer the following:
- Unlocking extra features of the platform
- Increased Transaction Volume
- Reduced transaction fees
- Dedicated customer support on disputed transactions etc.
Typically, it is common for Crypto exchanges to allow users to trade crypto up to a certain limit with no KYC. But after reaching a certain limit, they will be required to provide additional information as they proceed.
KYC Best Practices for Cryptocurrency Exchanges
Documents required for standard Know Your Customer KYC AML requirement by cryptocurrency exchanges are:
1. Identity Documents
- Government-Issued Photo ID document
- Driver’s License
- International Passport
- Voter identification card
- Social security Number
- Permanent Account Number (PAN) card
2. Proof of Address
- Utility bill
- Recent bank statement
- Rental agreement
3. Digital Footprint:
- Email Address
- Phone number
- Social media
4. Biometric Verification Authorization
- Picture verification
- Voice ID
- Video Verification
Downsides of KYC
- Government Regulations
- Third-Party Surveillance
- Exposure to phishing by hackers
In summary, crypto exchanges’ KYC efforts may fall into one of 3 categories:
- No KYC: a crypto exchange that allows new users to open an account without any KYC requirement. Usually, with limited functionality (e.g. with high crypto exchange withdrawal fees)
- Basic KYC: an uploaded ID document and photo. Allows extended features and increased volume of transaction and withdrawal limits.
- Full KYC: This is for users who want to deposit, withdraw and transmit large volumes of cryptocurrency. Such users must complete a comprehensive KYC verification process.
Best Crypto Exchange Without KYC
If you are looking for an exchange without a very stringent Cryptocurrency KYC process, there are a few options you can explore. However, such crypto exchange membership plans are perfect for casual investors who seek to hold only a small amount of cryptocurrency.
Despite its many advantages, KYC poses security risks and privacy invasion as well as inordinate government restrictions over user’s finances. Many crypto users kick against this by seeking out trading channels that offer a high level of security and privacy of their personal data.
Typically, decentralized exchanges, P2P marketplaces and altcoin auction sites often allow users to trade more freely with minimal KYC requirements.
When trading cryptocurrency incognito, Whalesheaven and Bisq are some of the best crypto exchanges. They basically allow users to choose the level of private information that they wish to share without limiting features or impeding users freedom of trade.
To trade crypto on Whalesheaven, all that is required of you is an email and a passcode. You may choose to add a phone number for 2-factor transaction authentication, but even that is optional. Just how amazing is that?
In addition, the platform does not hold custody of your crypto assets, which removes the possibility of losing your funds to hackers.
Bisq is another crypto exchange platform that is popular among crypto traders and investors, in terms of relaxed KYC requirements.
However, what makes Whalesheaven stand out among other no-KYC exchanges like Bisq is that you get zero charges on withdrawals up to $10,000. Similar exchanges may charge you as high as $10 for such transactions.
Many crypto traders globally now opt for Whalesheaven because those intrusive KYC verification rules are pretty much non-existent, complete security of crypto assets and it imposes little or no charges on trades. All you need to begin trading on Whalesheaven is your internet connection and a crypto wallet.