Whoever in the crypto space must do numerous KYC completion with your accurate data for various exchanges and join multiple whitelists and even for many airdrop events without knowing the underlying severe threats to your privacy and many unwanted incidents which are currently being evolved in different sectors with deep investigations. In this post, I am going to discuss some of the threats and dive into the importance of KYC and how it can kill the Cryptoverse!

Know Your Customer which is known as KYC simply consists of a set of procedures applied by many financial institutions to recognize a customer's identity and to protect the institute from fraud. KYC is the first step in imposing Anti-Money Laundering (AML)system and it also helps financial institutions to calculate the underlying risk with their customers. And so, cryptocurrency exchanges also require KYC to cope with AML regulations by the governments. By verifying their customers' identities, exchanges are helping in preventing criminal activities such as money laundering and the financing of terrorism worldwide. The history of traditional financial institutions adopting KYC rules is very long, and now crypto exchanges are trying to catch up. Crypto exchanges are slow to react because KYC policy goes against the nature of blockchain platforms due to the decentralization concept which is strongly against KYC. But regulators from various countries want crypto exchanges to adopt KYC so that they can trace illegal transactions for transferring money out of the country. Thus KYC is helping to identify every transaction in the age of the Internet and blockchain which is also beneficial for the general users for preventing hacking, restoring hacked accounts, and protecting customer assets from stealing or scamming.

According to the exchange Bybit, based on the risk profile of a customer and the guidelines set by various financial institutions, KYC can be divided into two risk mitigation layers:

• Customer Due Diligence (CDD): These are basic guidelines to identify a customer. CDD usually includes basic verification, such as asking customers to upload their photo, details, and ID card. Based on the type of customer account, it can also include background checks and verification of credit history.
• Enhanced Due Diligence (EDD): As the name suggests, this is a more rigorous approach to customer verification. EDD is usually conducted by skilled compliance officers who verify the identities of high-net-worth clients of offshore and private banks.

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Benefits of crypto KYC

There are several benefits of KYC and I want to mention them before talking about the negative impacts which are increasing alarmingly in recent days. These benefits are as follows-

• It helps the customers and the crypto exchanges from all kinds of legal financial laws and regulations. By implementing strong KYC systems, cryptocurrency exchanges are staying safe and ahead of the curve of legal requirements according to state laws.

• The crypto exchanges feel less pressure from the financial regulators by the transparent KYC procedures.

• Customer trust is increased by a strong KYC system.

• Preventing terrorism funding which is a crucial thing for privacy-controlled cryptocurrencies.

• Reducing the black-market deals with drugs, human trafficking, and all sorts of illicit doing.

• Enhance the exchange's flexibility by the uplifting trust.

• For traders, their fund's safety is elevated which is a good thing for small traders.

• A strong KYC implementation makes the market more stable.

• It reduces the risk of scams and money laundering.

How dangerous the KYC could be?

After the long list of benefits, you may be thinking of the importance of KYC as unquestionable which is completely a wrong idea. KYC can be a disaster for the crypto sphere and even the other sector can be affected by the data leak data business is a major issue worldwide for the violation of privacy and personal data are being made public and often sold to illicit people who can use those for blackmailing purpose and do many more illegal activities in the cover of false identity.

• Class of Crypto and KYC: The matter of anonymity is a major concern with the comparison of crypto in regard to banking regulations, specifically ‘know your customer’ (KYC) and anti-money laundering (AML) regulations which are strongly maintained by the banks but for crypto or BTC, such things are strongly discouraged. Thus the conflict is from the basic principle of these two-sector which can not be overlooked or neglected. The balance between these two will be a possible solution.

• Dark-market KYC business: The first point can be ignored until your data are safely stored in the banking or the exchange authority but the situation can be easily a disaster with the mass leakage of your financial details with the address and so many personal information is sold in the dark market. And it has happened earlier- Hacked Customer Data From World Leading Cryptocurrency Exchanges For Sale On The Dark Web?. So, your data is compromised when you are doing KYC with a third party which is not liable after any occurrences in future.

• Fake accounts in lending platforms: Yes you are reading this correctly, it will not be surprising that your information has been used in some lending platform for scamming money or laundering money. And this is a major issue recently the Indian govt. faces and they are planning to make their KYC more stable-India needs a robust KYC to prevent crypto fraud.

• Fake accounts in Games and Web 3.0: Your compromised data can be used on the decentralized internet for creating your fake account and in many illegal games to scam you or for doing illegal transactions that cover your identity. And in these circumstances, the situation is very severe. Recently, Indian authority found such cases in some illegal games as they have their financial system Paytm-Indian Anti-Money Laundering Agency Searches Paytm, Razorpay

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How these risks can be minimized?

There are no such guaranteed options for you as the world is moving with the Internet and you have to upload your documents such as your passport, bank statement, address, and mobile numbers which could be compromised anytime. But with the following steps, the individuals and the authority both can extend their security measures to avoid suh=ch risks!

• Try to find alternative ways to avoid KYC as much as possible. In this case, decentralized exchanges can be one solution for trading activities! Or find some exchanges that don't care about the KYC but be updated with their terms and conditions in this case.

• Do KYC only for the important exchanges which you trust, don't do it so frequently too weak exchanges for grabbing some bonuses.

• Don't do KYC for some short-term rewards or arthropods which can be very dangerous who will sell your information with your social sites, email, and other information you provide?

• The good exchanges and the BANKS must ensure the highest level of security for their customers.

• Besides financial institutions or exchanges, many people reveal their sensible private and personal information to many social networks which is another source for your data compromised.

Conclusion

The Internet is safe until you are making yourself safe and protecting your data and information from scammers and from trustless websites and fake offers and unnecessary links on any web pages. It is your responsibility to protect yourself which should be ensured by using some paid anti-virus and personal protective measures. Before using any exchanges or pages that require KYC, you must know about the page authority for avoiding future risks related to KYC.

Thanks a lot for your time and attention, if you have any queries, let me know in the comments. I will catch you at the next.
Have a nice day!