What is KYC and Why is it Necessary in the Crypto Space?

Introduction

KYC standards are designed to protect financial institutions, banks and exchanges against identity theft, financial fraud and money laundering, it is a must for related enterprises and is an essential part of all financial activities. Furthermore, it also plays an important part in business management, and property protection, so as to meet the regulatory requirements of authorities.
What is KYC? Why is KYC necessary? What is the role of KYC? Gate Learn takes you to a comprehensive understanding of KYC.

What is KYC?

KYC, short for Know Your Customer, aims to examine the account holder to ensure the legitimacy of the source of funds, it is also the institutional basis for preventing money laundering and corruption.

User’s personal information is required in KYC, including name, ID number, property status and so on. For example, the personal information you fill in when you open a bank account also belongs to KYC as it is a real-name authentication mechanism. For the traditional financial sector that has applied KYC standards for decades, it is necessary for companies to protect their own property and that of their users, as well as to meet the regulatory requirements of authorities. However, it is only in recent years that KYC has become the default feature in the crypto industry.

KYC authentication documents in the crypto industry usually contain two types: one is identity authentication documents, including valid government-issued documents such as ID cards, passports, and driver’s licenses; and the other is address authentication documents, including electricity, water, gas bill or credit card bills within three months. In terms of the authentication methods, it includes the confirmation of basic data such as ID and passports while cross-checking with other data provided (e.g. email address, phone number).

KYC has been a must in most of the major crypto exchanges, users may not be able to fully experience all the functions the exchange provided without KYC. As for Gate.io, users are able to create accounts, get access to basic functions, and make limited transactions before KYC, for access to all functions and higher deposit and withdrawal limits, KYC verification is a must.

Why is KYC Necessary in the Crypto Space?

The emergence of illegal financial practices

Shortly after Bitcoin was created, the market downturn triggered by the ICO bubble made the whole industry aware of the need to establish authority and credibility through cooperation with regulators.

With the fast development of cryptocurrencies, more and more criminals have taken advantage of the nature of cryptocurrencies including decentralization and anonymity for illegal fundraising, money laundering, and contraband trafficking, especially in recent years. Regarding this, the whole industry has begun to implement KYC standards at the request of governments and financial regulators worldwide and exchanges will use the information collected for dynamic tracking of transactions to ensure that no money laundering or illegal fundraising occurs.

Concerns of security

The occasional hacks always make users nervous about their assets although most of the hack types have been identified, attackers can still find bugs for certain systems and steal funds. However, the hacker’s information can be traced with KYC, largely preventing criminals from illegal actions through exchanges.

The Standard Procedures of KYC

KYC contains data collection and verification, customer due diligence and continuous monitoring in general. KYC procedures refer to steps used to verify and manage user profiles, which are not limited to the early registration stage, but are also conducted periodically for remediation purposes. Typically KYC has three main steps:

Customer Identification Program (CIP)

This is the first and most intuitive KYC procedure which involves the collection, verification and record keeping of customer ID information. CIP is always performed at the time of account opening for banks. For crypto exchanges and loosely regulated financial institutions, CIP is usually finished after registration.

Customer Due Diligence (CDD)

Customer due diligence may be conducted after ID verification with the aim to carry out risk assessments. A customer will be marked during this process if he or she has been flagged for financial fraud or is under investigation.

Ongoing monitoring

Ongoing monitoring ensures that KYC information is up-to-date and allows for automated review of potentially suspicious transactions. The exchange may suspend the customer’s account and report it to related regulatory and law enforcement depending on the investigation results.

The Core Roles of KYC

Respond to regulation and promote more adoption

With increasingly strict crypto regulations in more and more countries, coupled with the introduction of tax policies, KYC has become a must to prevent financial crimes while driving the mainstream adoption of crypto by cooperating with regulators.

Protect assets for individuals

Cryptocurrency exchanges are responsible for protecting traders, investors and their funds, and the introduction of KYC is helpful to monitor the flow of cryptocurrencies and the security of investors’ funds. Measures such as address whitelisting are making security systems more robust, thus effectively protecting users’ personal assets.

Moreover, in cases that users forget their login passwords or are otherwise temporarily unable to access their personal accounts, KYC can be regarded as a line of defense to protect the assets of individuals.

Gate.io Complies with KYC Rules

As a leading cryptocurrency exchange, Gate.io is committed to KYC compliance which is not only efficient protection for the exchange itself, but also a guarantee to the assets security of millions of users. Gate.io has implemented KYC and started verifying personal and organizational accounts. Users are able to raise withdrawal limits for a specific coin, enjoy a faster and more smooth deposit and withdrawal experience, initiate fiat trading and participate in Startup projects with a verified account.

How to Obtain Identity Verification as An Individual

1. Go to Gate.io
2. If you are a new user, please create an account first. If you are an existing user, please log in to your Gate.io account.
3. Click the user icon on the upper-left corner. Then click “Security Center” - “Identity Verification” - “Personal” to enter the “Identity Authentication” page.
   Follow the steps:
   

How to Obtain Identity Verification as An Organization

1. Go to Gate.io
2. If you are a new user, please create an account first. Otherwise, please log in to your Gate.io account.
3. Place your cursor on the top-right profile icon and go to “KYC (ID Verification)” - “Organization” - “Verify Now”.
4. Provide all the information required on the “Business Identity Verification” page, including signup country, type of company, company name, business license/company registration number, website to query information, etc. Then click “Next” or “Information on temporary”.
5. Provide company representative information, including the company representative’s full name, identity document type, ID number, etc. Then click “Next” or “Information on temporary” to proceed, or “Previous” to edit the information in the previous step.
6. Provide all the information required in the “Authorized Representative Of the Company” section. Then click “Confirm and Submit” or “Information on temporary”, or click “Previous” to edit the information in the previous step.

Learn more:
About Identity Verification KYC Procedures（on web)
About Identity Verification KYC Procedures (on APP）
How to Obtain Identity Verification as An Organization