What is KYC?

If you've ever created an account on a crypto exchange, chances are you've had to go through a KYC process. Some people find this annoying, although it is incredibly important that it happens. This is because it allows governments and agencies to keep track of who is responsible for a particular transaction in order to deter criminal activity.

What is KYC?

KYC stands for Know Your Customer but is also called Know Your Client by some organizations. By KYC, we mean the process by which an organization or company verifies who they are dealing with.

Almost every website and application today require you to have an account. This is also the case with Coinmerce, for example. However, creating an account is a fairly simple process. You can enter a name and contact information yourself. But how does the organization behind an application know if these data are actually correct?

There are various applications where it is important that the organization behind it knows who they are dealing with. Think for example, of a bank, but also of a crypto exchange. If this does not happen, people can perform illegal actions without being punished for it.

Why is identity verification necessary?

There are several reasons why it is important to establish the identity of users. In most cases, it is required by, for example, governments or Central Banks.

For example, the Dutch Financial Supervision Act (Wft) and Prevention of Money Laundering and Financing of Terrorism Act (Wwft) stipulate that financial service providers comply with KYC requirements. Because Coinmerce is a Dutch crypto exchange, we must comply with these laws and regulations.

By the way, not only crypto exchanges have to comply with this. These regulations apply to all financial service providers in the Netherlands. Think for example of insurers, financial advisors, and banks. The Dutch Central Bank (DNB) checks whether companies comply with the regulations.

As soon as the identity of users is not established, criminals who want to launder money, commit fraud, evade tax, or finance terrorism have free rein. No organization keeps an eye on what they spend their money on. The account from which money is sent is not linked to an identity so that these organizations do not know who is sending the money.

Is crypto used by criminals?

Cryptocurrencies are often associated with criminal activities. Criminals would often use cryptocurrencies because they would be anonymous. However, we see that this is less and less often possible.

Due to the KYC process, crypto exchanges know who the owner of a certain wallet is. The moment it is known that a wallet address has been used for criminal activities, the crypto exchange can easily and quickly find out who the owner of the wallet is. This helps governments and agencies track down criminals faster. So, cryptocurrencies today are not at all as anonymous as many people think.

What does the KYC process look like?

Every company has its own way of carrying out the KYC process. In almost every case, the identity of the user will have to be established. The user will have to leave personal data such as name, address and contact details. Identity will also need to be established by sending proof of identity, such as an ID card or passport, along with the application.

There are also institutions that will ask multiple questions. For example, they may ask where the money you are going to use comes from, and for what purposes you want to use the application.

Coinmerce's KYC process can be completed simply and quickly. You only need to leave your personal information and show proof of identity. Once you have done this, you can use our crypto exchange without any problems.

Permanent monitoring

You may need to verify your identity with an organization more often. This is because they can choose to periodically establish the identity of users or check all transactions. By monitoring all transactions, they can filter out notable transactions and report them to the proper authorities.

Are my personal data kept safe?

It's not entirely unjustified if you find yourself wondering about the security and privacy of your data. After all, you must hand over sensitive data to a company you may not know well yet.

That's why it's always important to research how a company protects customer data. After all, researching the security of an application or organization is never a bad idea.

Coinmerce does not sell user data to third parties. As such, we take our customers' privacy very seriously. Should there ever be a data breach, we report it immediately to the affected users. Our privacy policy describes how we store our customers' data, and what we do to secure it.

What is the difference between KYC and AML?

AML stands for Anti-Money Laundering and is used together with KYC. These two terms have a lot in common. KYC is a part of AML.

By AML, we mean all the processes, rules, etc., which are used to combat money laundering. KYC is one of several components that are designed to deter money laundering.

Another way in which money laundering is countered is through Machine Learning. Various software has already been developed that can recognize high-profile transactions and then report them to authority. This technique is getting better and better as time goes on and is mainly used by banks. This is because it is a lot easier to monitor money flows here.

Because blockchain technology is still quite new, it is very difficult to control and filter money flows on a blockchain. Therefore, this type of technology is not yet used for cryptocurrencies.

Summary

KYC stands for Know Your Customer or Know Your Client and is a process by which the identity of an online user is established. Nowadays, anyone can easily create an account anywhere, but websites often do not know who the owner of an account is. Websites and applications do this by checking, for example, an identity card or passport.

The KYC process is made mandatory by many governments. For example, Dutch legislation requires financial service providers to establish the identity of their customers. This is necessary to be able to prevent money laundering and other criminal activities. If something should happen that is prohibited by law, governments at least know who is responsible.