Why Do Blockchain Companies Require KYC Procedures?

With so many misconceptions regarding the “anonymity” of blockchain, many newcomers are finding themselves confused as to why they’re required to provide identifying information to these types of companies. Know Your Customer procedures, commonly referred to as KYC, refers to the verification of customer identity before doing business with them.

Banks and financial institutions are required to have their customer’s KYC process fully completed before they allow complete access to all services. These organizations can face fines, sanctions, and even irreparable damage to their reputations if they do business with a terrorist organization or money launderer. More importantly, KYC helps protect those organizations against fraud and losses resulting from illegal funds or prohibited transactions.

While KYC is required as a precaution against illegal activities such as funding terrorism, money laundering, or bribery, it can help the government detect these types of acts early on and enable them to better track the culprits.

So, is that why many blockchain companies are requiring KYC?

In a word… yes.

However, KYC provides a few additional benefits for blockchain:

• Data alterations can be monitored and tracked.
• Misuse and fraud are reduced and incidents are detected earlier.
• Better overall governance.
• Compliance reports, required in more and more areas, can be automatically generated from blockchain data.
• Reduced non-compliance penalties.

Of course, anytime there is any sort of whisper of the dirty word “regulation” in the blockchain sphere, there are naturally those that resist. Multiple crypto exchanges are attempting to do anything they can to avoid having to introduce KYC procedures. Many are pointing out that it’s impossible for users to obscure the source of their funds as all transactions are recorded and visible onchain forever. While these exchanges are becoming fewer and farther between, you can still find some that don’t require a significant signup process or a wait for KYC approval. However, due to regulatory requirements and various laws being implemented, most exchanges, organizations within the crypto sector, and other blockchain platforms dealing with financial transactions are moving toward KYC procedures.

So get used to it folks, KYC is here to stay.