Cryptocurrency exchanges now have to keep up with the Know-Your-Customer regulations being established by authorities across the globe. This issue has risen following the bullish trend of crypto assets.
Most cryptocurrency exchanges have been practicing anonymity in their transactions to safeguard the identities of users. However, because of the bullish trend that is being experienced in the market, crypto exchanges are being forced to reveal the identity of their customers through the Know-Your-Customer system. This will be done in a bid to tackle the instances of money laundering and other criminal activities done on these exchanges.
When the bullish trend of crypto assets happened in 2017, most of the crypto exchanges did not have the correct measures in place to curb the threat of criminal activities being done on these platforms. The CipherTrace Report that was created in 2020 also revealed that out of 500 crypto exchanges analyzed, only 56% of these had implemented KYC strategies.
Even in these exchanges, the KYC techniques that they had implemented were generally weak and could not have a great impact. However, the crypto currency market has faced a bullish condition that is now stronger than ever and this has led to different agencies calling for a reinforcement of the KYC rules.
What are the effects of the KYC rules?
In traditional finance, the KYC measures are a requirement because over-the-counter practices take first priority. However, KYC is a very controversial topic in the crypto community.
A good majority of the users in crypto platforms do not support KYC rules and they rather maintain anonymity in their transactions. This is especially the case with the investors who joined the crypto community may years back.
KYC also has its own benefits because it protects the users who are using crypto platforms. An example of this is when a user tries to access a crypt platform but they are unable to provide their details.
If the user had already registered under KYC, the crypto platform can very easily restore their access on the platform. This can be nearly impossible if the crypto exchange had not obtained any details about that customer.
KYC measures also guarantee cyber security for users on their platform because with the bullish trend, fraudsters can seek to take the chance and exploit any vulnerability in the system. With the right KYC measures, the level of risk associated with crypto will also reduce drastically. Due to the changing regulations, crypto exchanges that adopt KYC measures will be strong players in the industry.