KYC – Know Your Customer
Web3 Infrastructure • Tools • Interfaces
identity verification for platform access
KYC (Know Your Customer) is a regulatory process used by financial institutions and crypto platforms to verify the identity of their users. It typically involves submitting personal information such as a government-issued ID, proof of address, and sometimes a selfie. KYC is designed to prevent fraud, money laundering, and other illegal activities by ensuring users are who they claim to be.
Use Case: A centralized exchange requires new users to complete KYC verification before they can deposit funds, trade, or withdraw. This involves uploading a passport photo, utility bill, and live selfie—after which the user gains full platform access.
Key Concepts:
- Identity Verification — Process of confirming a user’s real-world identity through documentation
- AML (Anti-Money Laundering) — Regulations that often accompany KYC to prevent illicit fund flows
- Permissioned — KYC-required platforms operate as permissioned systems
- Permissionless — Contrasting model where no identity verification is needed
- Decentralization — Often reduced in KYC-required environments
- Self-Custody — Personal wallet control that bypasses KYC requirements
- Censorship Resistance — Property diminished when KYC enables account freezing
- Decentralized Exchange — DEXs typically operate without KYC
- Financial Sovereignty — Individual control that KYC can limit
- CBDC — Central bank digital currencies likely to require extensive KYC
Summary: KYC represents the intersection of traditional regulatory requirements and crypto access. While it provides consumer protection and regulatory compliance, it also creates privacy concerns and barriers to entry. Understanding KYC requirements helps users navigate the spectrum between fully regulated centralized platforms and permissionless decentralized alternatives.
KYC Requirements by Platform Type
where identity verification is required
• Centralized exchanges (CEX)
• Fiat on/off ramps
• Regulated lending platforms
• Crypto banks/cards
• Some NFT marketplaces
• Institutional services
• Decentralized exchanges (DEX)
• Self-custody wallets
• DeFi protocols
• Peer-to-peer trading
• Most NFT minting
• Layer 1 blockchain usage
The KYC Trade-off
benefits vs concerns of identity verification
• Fraud protection
• Account recovery options
• Fiat on/off ramps
• Regulatory compliance
• Consumer protections
• Institutional trust
• Privacy loss
• Data breach risk
• Barrier to entry
• Censorship potential
• Account freezing risk
• Excludes unbanked
• Full legal name
• Date of birth
• Government ID (passport/license)
• Proof of address
• Selfie/liveness check
• Sometimes SSN/tax ID
• Ledger breach (2020): 270K users
• Gemini breach (2022): 5.7M emails
• Multiple exchange leaks
• KYC data = high value target
• Identity theft risk
• Permanent exposure
KYC and Financial Access
the global inclusion perspective
• 1.4B+ unbanked globally
• Refugees without documents
• Unstable address populations
• Privacy-focused individuals
• Politically persecuted
• Regions without ID systems
• Wallet = bank account
• No documents needed
• Global access instantly
• Self-sovereign identity
• Censorship resistant
• Financial inclusion
Navigating KYC Strategically
practical approaches for crypto users
• Use DEXs when possible
• Self-custody after buying
• Limit CEX accounts
• Use privacy-focused services
• Consider jurisdiction
• P2P for on/off ramps
• Large fiat conversions
• Institutional services
• Tax reporting simplicity
• Account recovery needs
• Regulated products
• Crypto credit cards
• Dedicated email for exchanges
• Unique passwords per platform
• Monitor for breaches
• Minimize data shared
• Withdraw to self-custody
• Consider VPN usage
• Zero-knowledge KYC proofs
• Decentralized identity (DID)
• Soulbound tokens for verification
• Credential attestations
• Privacy-preserving compliance
• Regulatory evolution
KYC Checklist
understanding identity verification in crypto
☐ Know KYC = identity verification
☐ Understand AML connection
☐ Know permissioned platform requirements
☐ Compare to permissionless access
☐ Understand decentralization trade-off
☐ Know data collection scope
☐ Know self-custody benefits
☐ Understand censorship resistance
☐ Know DEX options
☐ Understand financial sovereignty
☐ Know CBDC implications
☐ Compare platform types
☐ Understand data breach risks
☐ Know account freezing potential
☐ Recognize privacy implications
☐ Consider jurisdiction factors
☐ Evaluate platform security
☐ Plan for worst case
☐ Minimize exposure when possible
☐ Use KYC only when needed
☐ Withdraw to self-custody
☐ Monitor for breaches
☐ Diversify across platforms
☐ Stay informed on regulations