While most crypto exchanges have started imposing KYC requirements, investors still have the option of using crypto exchanges that don’t require it. Many people believe that implementing Know Your Customer (KYC) systems in cryptocurrencies is a deterrent to the Bitcoin Standard, which has typically focused on anonymous peer-to-peer transactions.
Regulators, on the other hand, have been adamant in urging financial institutions to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements as a method of assuring investors’ safety and protection from financial fraud.
While most crypto exchanges are implementing regulatory recommendations to stay ahead of the curve in crypto’s mainstream adoption, investors have the option of choosing crypto exchanges that avoid KYC processes and provide greater anonymity. Is it possible to get full security while opting for the latter as an investor?
The majority of the time, anonymity is a two-way street. For example, many crypto exchange owners who don’t run KYC (or compliant) operations elect to stay anonymous to sidestep any legal trouble. Therefore, investors must be able to trust the people running the show.
While decentralized exchanges use trustless protocols to create a community-controlled trading platform, instilling trust in investors becomes more important when there is no KYC on the platform. Monitoring the people running the show and checking the platform’s track record should be your top priority when using these types of services.
Although those suits in traditional finance who want to preserve the status quo attempt to discredit cryptocurrencies as being involved in money laundering, the reality is that illegal crypto transactions have decreased year over year. And even though it’s easy to use cryptos without undergoing KYC verification, a Chainalysis study actually confirmed that less than 1% of all cryptocurrency transactions were linked with illicit activity.
The immutable records of blockchain allow for Recording Authorities to identify and retrace the ownership of digital transactions. This encourages compliance with KYC from both users and exchanges, making it more difficult for those with ill intentions to use crypto platforms for their funding needs.
When you use crypto exchanges, one of the main things is that you lose control over your assets. This happens because when you store cryptocurrencies on an exchange, you’re giving them your private keys. Investing in cryptocurrencies without undergoing KYC verification exposes investors to the danger of permanently losing their cash. While KYC-compliant and non-KYC-compliant platforms require investors to give up custody of their cryptocurrency assets to third parties, compliant exchanges provide greater confidence among investors and regulators.
The answer to the question of non-KYC cryptocurrency exchanges can be found by understanding the distinctions mentioned earlier. KYC or not, crypto investors are equally exposed to risks resulting from external factors such as the owner’s intentions and financial practices that aren’t respectable. A significant disadvantage of utilizing a non-KYC cryptocurrency exchange is that you can’t trade with cryptocurrencies that aren’t supported by the provider.