When Bitcoin appeared in 2009, its creator — hiding under the pseudonym Satoshi Nakamoto — launched more than just a technological revolution. He offered an alternative to the traditional financial system: no intermediaries, no banks, and no strict regulators. The first cryptocurrency supporters spoke of complete anonymity, freedom, and decentralization. The idea proved so compelling that within just a few years, digital assets gained millions of users around the world.
However, with growing popularity came increased attention from governments. Cryptocurrencies began to be used not only by enthusiasts and investors, but also by criminals seeking to hide traces of illegal activity. To reduce risks and bring order to this new financial reality, regulators started introducing rules familiar to the banking sector — and one of the most important among them is the KYC (Know Your Customer) procedure.
So, what is KYC, why is it needed in the crypto world, and how is the very philosophy of anonymity changing in the digital economy? Let’s take a closer look.
What Is KYC in Simple Terms?
KYC (Know Your Customer) is the process of verifying a client’s identity. If you’ve ever opened a bank account or applied for a card, you’ve already encountered it — usually, it involves providing your passport, social security number, proof of address, and sometimes a photo of you holding your ID.
In the cryptocurrency world, it works similarly: exchanges and wallets may also request the following information from a user:
- A photo of your passport or other ID,
- Proof of address (such as a utility bill or a bank statement),
- A selfie or short video holding the ID,
- A phone number or email address.
This process is called verification, and it confirms that the user is a real person — not a fake or automated account.
Why Crypto Platforms Need Your Data
In the early days of cryptocurrency, anonymity was one of its core values. Many people used Bitcoin precisely because they didn’t have to reveal their identity. However, as the market grew, it also attracted those who used crypto for illicit purposes — money laundering, funding illegal activities, tax evasion, or black market trading.
To combat these threats, governments began introducing regulations similar to those in traditional banking. KYC is one such tool. It’s needed for several key reasons:
- Fraud prevention: It’s harder for criminals to hide their tracks when user identities are verified.
- Combating money laundering and terrorism financing: These are global compliance requirements for both banks and crypto exchanges.
- Legal compliance: In some countries, operating without KYC is illegal. Platforms want to avoid fines or being shut down.
- User protection: If your account is hacked or there’s a dispute, verified users can more easily recover access or funds.
Where KYC Is Used in the Crypto World
Today, most major centralized platforms require KYC verification, including:
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Exchanges: Platforms like Binance, Bybit, OKX, Kraken, Bitfinex, Huobi, and others all request at least basic KYC from users.
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Crypto exchangers: If they work with fiat currencies (rubles, dollars, euros), KYC is almost always mandatory.
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Crypto wallets with extended functionality: For example, if the wallet allows buying crypto with real money.
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NFT marketplaces: Some platforms require user verification when selling NFTs or withdrawing funds.
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DeFi platforms: Not all require KYC yet, but as regulations increase, that may change.
Important! KYC doesn’t mean your data is automatically reported to tax authorities. Platforms don’t share info unless required by law. However, they are obligated to comply with their country’s regulations and may provide information upon official request.
Community Opinions: Pros and Cons of KYC
The topic of KYC divides the crypto community into two camps — and both sides have strong arguments.
Arguments for KYC:
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Security: It’s harder for scammers and hackers to operate. KYC makes it easier to identify and hold them accountable for fraud or criminal actions.
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Legal Compliance: Projects with KYC are more likely to receive licenses, banking partnerships, and legal protections.
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Institutional Investment: Big funds and banks can’t work with anonymous platforms — they require transparent partners.
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Mainstream Adoption: For crypto to become a part of everyday life, it needs to be understandable and acceptable to both governments and users.
Arguments against KYC:
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Loss of Privacy: Many people turn to crypto to protect their data and personal freedom. KYC goes against that core principle.
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Risk of Data Breaches: Even the biggest exchanges have been hacked. If KYC data leaks, it could lead to phishing, identity theft, or worse.
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Limited Accessibility: In some countries, people lack proper documents or simply don’t trust online platforms with sensitive data.
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Centralization: More control means less freedom. Cryptocurrency was created to oppose centralized systems — not become one.
Many believe mandatory KYC goes against the very spirit of crypto: an open, anonymous, and free financial world.
The Difference Between KYC and AML
When it comes to cryptocurrency regulation, two acronyms are often mentioned — KYC and AML. At first glance, they seem similar, but they refer to different concepts.
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KYC (Know Your Customer) is the process of collecting information about a user: passport details, address confirmation, and sometimes even income information. It is required by the platform to verify the identity of its users.
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AML (Anti-Money Laundering) is a broader system aimed at preventing money laundering. KYC is just a part of it. Without collecting user data, it is impossible to effectively monitor suspicious activity.
Thus, KYC is a specific procedure, while AML is the overall goal and policy that this procedure falls under. In the context of cryptocurrency, where anonymity has always been a key feature, both approaches are controversial but becoming increasingly common, especially on centralized platforms.
How KYC Affects Decentralized Finance (DeFi)
One of the main advantages of decentralized finance (DeFi) is the absence of intermediaries and free access without registration. However, with the growing popularity and transaction volumes, DeFi is increasingly coming under the scrutiny of regulators. While smart contracts themselves operate without control, entry points — interfaces, bridges, and wallets — are becoming targets for the implementation of KYC.
Some projects already restrict access to certain features if the user has not passed verification. This raises concerns within the community, as DeFi was created as a space for free and anonymous usage. On the other hand, having analysis at the base level allows for attracting large investments, working with banks, and ensuring security.
Therefore, today there are attempts to find a compromise: for example, using technologies that allow proof of verification without disclosing the actual data. There is no final solution yet, and the issue of implementing KYC in DeFi remains open — with a constant balance between security and freedom.
Also read: What is DeFi in cryptocurrency and how decentralized finance is changing the financial world?
How KYC Affects Liquidity and Accessibility of Crypto Markets
Liquidity is the ability to quickly buy or sell an asset at a “normal” price. The more people on the exchange, the higher the liquidity. This is important, especially during sharp price changes: you can quickly buy or sell without losing on the price.
How KYC Reduces Liquidity:
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It scares off some users. Many simply don’t want or can’t go through the verification process.
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It slows down access to the market. Sometimes KYC verification takes hours or even days — especially during periods of high volatility.
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Entry barriers. For some newcomers, this is a complex, unclear, and intimidating process.
How KYC Increases Liquidity:
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It attracts large capital. Institutional investors have no desire to work with anonymous platforms. When “big money” comes, liquidity increases.
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It increases trust. Verified users are less likely to engage in fraudulent activities. This makes the platform more stable.
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It expands the ability to work with fiat. KYC is a mandatory condition for connecting banking systems and various types of cards, meaning more users can enter and exit the market.
So, what about accessibility? It all depends on the context:
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In developed countries, KYC is often seen as the norm.
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In countries with strict censorship, unstable economies, or restrictions, it is seen as a barrier.
Thus, KYC makes cryptocurrencies more regulated and convenient for the state, but less accessible and free for end users.
The Future of KYC in the Cryptocurrency World
KYC has already become an integral part of the daily practices of most centralized crypto services. However, its role continues to evolve. On one hand, there is increasing pressure from regulators: more and more countries are introducing laws that require mandatory user identification. On the other hand, the community is looking for ways to preserve anonymity and freedom of access. It is at this intersection that the future of KYC is forming — more flexible, technological, and transparent. What can we expect in the coming years:
- Expansion of legal requirements. More countries will introduce laws requiring crypto services to implement KYC — both for anti-money laundering protection and for tax transparency.
- Growth of hybrid solutions. Models will emerge where users can undergo basic verification without fully disclosing their identity, for example, through zk-verifications (Zero-Knowledge Proof).
- Integration of digital identity. The appearance of “unified” identity certificates on the blockchain may occur, allowing users to utilize them across different services — convenient and secure.
- Separation of approaches in CEX and DeFi. Centralized platforms (CEX) will tighten verification, while DeFi may retain partial freedom through decentralized authentication methods.
- Increased trust and liquidity. KYC could become a factor that increases trust among institutional investors, leading to greater liquidity on platforms that adhere to these standards.
Are there any alternatives?
Yes, but with some caveats.
Decentralized exchanges (DEX). For example, Uniswap, PancakeSwap, 1inch — these do not require registration or verification. You simply connect your wallet and trade. But:
- You must have cryptocurrency in your wallet,
- You cannot buy crypto with rubles or dollars,
- No one will help if you make a mistake or lose your funds.
Also read: Top 10 Best DEX Exchanges: Cryptocurrency Decentralized Exchange Ranking in 2025
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P2P platforms. Peer-to-peer trading, for example, on LocalBitcoins (before its closure), BingX P2P, and similar platforms. Some services will not check anything, as they do not require documents, but the risks are much higher.
Also read: Best P2P Crypto Exchanges in 2025: Top 10 P2P Exchange Ranking
FAQ
What are the levels of client verification?
Many crypto platforms implement a multi-level verification system to balance security and convenience:
- Basic level (Level 0) — the client is required to confirm their email and phone number. Limited features are available with minimal withdrawal limits.
- Standard KYC (Level 1) — the client must upload scans of their passport, ID card, or driver’s license + selfie. After verification, full functionality is unlocked (trading, deposits, withdrawals up to a certain amount).
- Advanced level (Level 2/3) — the client provides necessary data: address confirmation, income source, bank statement, sometimes a video call. This opens access to higher limits and institutional products.
Exchanges may limit functionality depending on the level. For example, to withdraw more than $10,000 per day, the client will need not only a passport but also address confirmation.
Can KYC be passed with a foreign passport?
Yes, most international exchanges accept documents not only from their own country but also from abroad. This is especially important for foreign users or citizens temporarily residing abroad.
Acceptable documents usually include:
- Foreign passport;
- National ID card (if it has a photo and is in Latin characters);
- International driver’s license.
Note:
- The document must be valid (not expired);
- All data (name, date of birth) must be clearly visible;
- Sometimes exchanges require Latin characters or an official translation if the original document is in another alphabet.
What are the advantages and disadvantages of KYC?
Pros:
- Increased security and trust in the platform.
- Easier account recovery in case of password loss.
- Many features (such as large transfers) are unlocked only after verification.
- Platforms with KYC are more likely to comply with the law and less prone to blocking.
Cons:
- Loss of anonymity — your data is stored by a third party.
- Verification can take from a few minutes to several days.
- Some people (e.g., those without permanent registration or with a passport from a different country) may find it difficult to pass KYC.
- Risk of data leaks — especially if the platform does not prioritize cybersecurity.
What should a beginner do?
- Choose reliable platforms. It’s better to work with trusted exchanges than questionable “anonymous” services.
- Only undergo verification on official sites. Do not send documents through Telegram bots or fake links.
- Read the privacy policy. Make sure the platform does not share your data with third parties without a valid reason.
- Keep backups. Write down which documents you’ve sent to avoid confusion later.
- Don’t panic. KYC is a standard part of working with finances. Banks and payment systems also work this way.
Can KYC be passed anonymously or through VPN
No, it’s not possible to pass KYC anonymously. The procedure requires the mandatory submission of real personal data and official documents proving identity (passport, driver’s license, etc.). This is one of the legal requirements in most countries and the basis for anti-money laundering policies.
Some users try to bypass regional restrictions using a VPN to access platforms unavailable in their country. However, keep in mind:
- Using a VPN may violate the platform’s user agreement.
- If the platform detects VPN usage, the account may be temporarily frozen or fully blocked, especially during KYC attempts.
- After blocking, access to funds may be restricted, and lengthy correspondence with support may be required.
Therefore, it’s safer to pass KYC in the jurisdiction where you actually reside and on trusted platforms.
How long does KYC take?
The time for KYC verification depends on the platform, system load, and the quality of the submitted documents.
On large exchanges (e.g., Binance, OKX, Bybit), KYC is processed automatically if the documents are readable and all data matches. This can take from 10 to 30 minutes.
If manual verification by an operator is required, for example, due to blurry photos, partially hidden documents, or unusual data, the process may take several hours or even 1-2 business days.
During peak periods (e.g., market hype, pumps, crashes), processing may take longer — up to several days.
To speed up the process, make sure the photo is clear, the information matches what you entered in the form, and the document is valid.
Is KYC done only once?
KYC verification is usually required once during registration or the first withdrawal of funds. However, re-verification may be required in the following cases:
- The client changes personal data, for example, changes their surname or passport;
- A significant increase in transaction volume — the exchange may request additional verification from the client (as part of AML policy);
- Suspicious activity — the client’s activity includes frequent transfers, unusual locations, or VPN usage.
Exchanges may also periodically conduct re-certification of users as part of regulatory requirements — for example, once every few years.
How can a client avoid problems during financial verification?
To successfully pass financial verification, it’s recommended to:
- Use genuine and readable documents;
- Provide accurate information, especially your name, date of birth, and country of residence;
- Do not conceal the source of funds — especially for large transactions;
- Do not use fake documents or data — this may lead to account and funds blocking.
If the client prepares the necessary files in advance and ensures they meet the platform’s requirements, the process will be faster and safer.
What to do if financial verification takes longer?
Sometimes financial verification takes longer than usual — from several days to a week. This can cause inconvenience, especially if the withdrawal of funds is suspended.
Possible reasons for the delay:
- Queue for manual verification, especially during market activity spikes;
- Incomplete or unreadable documents;
- Additional requests from the security service;
- The platform is analyzing transactions and wallet connections (if you use DeFi, mixers, P2P, etc.).
What can be done to speed up the verification:
- Check your personal account — a request for additional documents may have already arrived;
- Make sure the uploaded files are readable, with good resolution;
- Contact support: politely inquire about the verification status, providing the client ID or ticket number;
- Do not resend documents without a request — this may cause confusion.
Avoid attempting to speed up the verification process through third-party services or changing the country of connection via VPN — this may raise suspicion on the platform.
Why might a platform suspend operations until verification is complete?
If the system detects suspicious activity, it will temporarily limit the client’s operations until it confirms that everything is in order.
Main reasons:
- A sharp change in the amount or frequency of operations;
- Connection from unusual IP addresses, TOR, VPN;
- Use of addresses linked to “blacklists” or the dark web;
- Attempt to bypass platform restrictions.
Such actions are not a punishment but a standard financial security measure to protect both the platform and the client.
After providing all the necessary documents and passing financial verification, access to funds will be fully restored.
Do you need to undergo financial verification for each withdrawal?
Usually, one identity verification procedure (KYC) is sufficient. However, if the client’s behavior changes, there is a large withdrawal, or new payment methods are used, re-verification may be required.
When additional verification might be requested:
- You increase your limits and make transactions in the tens of thousands of dollars;
- You withdraw funds to previously unused accounts;
- You use a bank account in someone else’s name;
- Discrepancies appear between the information in the profile and current actions.
Tip: If you are planning a large transaction, prepare supporting documents in advance. This will speed up the verification process and reduce the risk of your account being frozen.
Conclusion
KYC is not the enemy of cryptocurrencies but a step toward their recognition and integration into the global financial system. Yes, it limits absolute anonymity, but it makes the market more transparent, secure, and understandable for everyone — from beginners to large investors. If you’re just starting out in the crypto world, don’t be afraid of KYC. It’s important to understand how it works, why it’s necessary, and what its advantages and disadvantages are. This way, you can make informed decisions and use cryptocurrency safely and confidently.
