KYC

Know Your Customer refers to the rules that require financial businesses to verify who their customers are. On a crypto exchange this usually means submitting a government ID, a selfie, and sometimes proof of address before you can deposit money, trade above small limits, or withdraw. The exchange keeps these records and must report suspicious activity to regulators.

KYC exists because of anti-money-laundering laws. In the United States, exchanges are treated as money services businesses under the Bank Secrecy Act and must register with FinCEN. Similar rules apply in the European Union, the United Kingdom, Singapore, and most other major jurisdictions. Exchanges that skip KYC risk being shut down or fined, as happened to several platforms in the 2020s.

KYC applies to centralized services, not to the blockchain itself. Decentralized exchanges and self-custody wallets have no account to verify, which regulators view as a gap and which privacy advocates view as essential. Sharing identity documents also creates a data breach risk, so using well-established exchanges with strong security practices matters.