Balancing Security and Privacy: The Role of KYC in Crypto Exchanges

KYC, or "Know Your Customer," is a vital security measure implemented by financial institutions and crypto exchanges to verify the identity of their clients, mitigate risks of illegal activities like money laundering, and ensure compliance with regulations. It involves steps such as verifying customer data, conducting liveness checks, assigning risk ratings, and continuously monitoring transactions for suspicious activities. Mandatory KYC helps exchanges comply with international standards and prevent penalties, although it raises privacy concerns and may create friction in the onboarding process. Conversely, non-mandatory KYC appeals to users valuing privacy by reducing costs and simplifying onboarding, particularly for small transactions. This approach supports broader crypto adoption while maintaining security and regulatory compliance. Platforms like Changelly implement risk-based KYC, requiring verification only for transactions flagged as risky, thereby facilitating user registration without compromising security.