KYC (Know Your Customer) is a regulatory process in which financial institutions and other businesses verify the identity of their customers.

A Pillar of Financial Regulation

KYC is a critical part of a broader anti-illegal activity framework, and it is a legal requirement for most financial institutions. The process involves collecting and verifying a customer's personal information, such as their name, address, and government-issued ID. This information is used to ensure that the customer is who they claim to be, and to monitor for any suspicious activity that might indicate money laundering, fraud, or terrorist financing.

In the crypto world, KYC is most commonly required by centralized exchanges and other regulated platforms. When you create an account on a CEX, you are typically asked to provide a photo of your ID and a selfie to prove your identity. This process links your on-chain activity to a real-world identity, making it more difficult to use cryptocurrency for illicit purposes.

Why It Matters

For the average user, KYC adds a layer of security and trust to a platform. It provides a means for law enforcement to investigate crimes and helps to protect users from fraud and scams. For the crypto industry as a whole, KYC is an essential part of becoming more compliant with global regulations. While some in the decentralization community view it as a contradiction of the core principles of anonymity, others argue that it is a necessary step to bring cryptocurrency into the mainstream.