Blog Post

Why Crypto Exchanges Need ID

Why Crypto Exchanges Need ID
Photo by jeffwasserman from Canva

Have you ever had to pause the online signup process on crypto exchanges because they require you to provide personal identification details? Well, you are not alone. With the rise of online criminal hackers and scammers, one cannot help but be extremely careful about sharing sensitive information online. However, the truth is that ID collection is necessary for several important reasons, including compliance with the Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols. These security protocols help prevent theft, money laundering, and other criminal activities.

What is KYC Verification?

What Is KYC Verification?
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KYC stands for Know Your Customer. As the name implies, it is the initial customer identification stage in AML processes. It enables financial institutions, including crypto exchanges, to verify that a new customer is who they claim they are during the signup process.

Financial institutions can conduct the KYC process by collecting a customer’s Personal Identifiable Information (PII): full name, date of birth, and address. They have to verify these details against the clients’ corresponding official government-issued documentation, such as a passport or driver’s license, and their proof of address. KYC is an excellent way to combat the mayhem of online fraud.

Is my ID Safe on Crypto Exchanges?

The answer to this question is quite complex and needs a bit of unpacking. First of all, you should know that there are numerous crypto exchanges around the world with different methods of organizing and processing user’s data based on the regulations and safety requirements mandated by the exchange’s jurisdiction. Therefore, the safety of your ID or personal data is determined by the security, jurisdiction, compliance requirements/regulation, and track record of the crypto exchange in question.

This is why it is expedient to familiarize yourself with the terms of service and privacy policies of crypto exchanges you intend to work with. However, most legally operating crypto exchanges are still relatively safe. This is because crypto exchanges generally have security features that help to keep clients’ sensitive personal information on their network. You should also be aware that legally operating crypto exchanges are obligated by law to keep your personal data safe, including your ID. To protect users, these crypto exchanges employ two-factor identification as a requirement for completing transactions on their platform.

The two-factor authentication allows these exchanges to link your transaction to an email address or a phone number. This ensures an enhanced security level where only people with access to those components can access your account. It is a relief to know that most crypto exchanges employ this security feature, adding an extra layer of security to your ID and other personal credentials.

Who Can Access My ID On Crypto Exchanges?
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An easy way to determine how vulnerable your personal data or ID is on a crypto exchange is to consider the security measures adopted by the crypto exchange. For instance, Catalyx, a Canadian premier exchange, adopts premium security mechanisms and protocols to protect its user’s data. These features include a two-factor or SMS authentication, email validation and other encryption protocols that prevent data breaches. The measures utilized by Catalyx keep your data secured on their servers and prevents unauthorized access by bad actors or hackers.

These processes ensure data security assurance since crypto exchanges like these do not sell or rent their client’s personal information to third parties. However, it must be noted that the laws in the jurisdiction of the crypto exchange may mandate that they share personal information with the legal authorities after receiving a court order. This usually occurs in cases involving financial crimes like money laundering or fraud.

Can I Buy Crypto without Giving my ID?

While it is relatively unsafe, you can buy crypto without giving your ID.

However, this process has become difficult, as the financial authorities of many counties have introduced strict regulations on cryptocurrency trading. Some of the methods for buying crypto without ID include:

  • Peer-to-peer (P2P)

    Peer-to-peer transactions allow two traders to connect directly to each other to trade cryptocurrency. This form of crypto trading does not require the interaction of a central authority; it cuts out the middleman to let you negotiate your deal directly. You can decide to make a bank transfer to the other trader or pay that person with cash. Several crypto exchanges have peer-to-peer trading features integrated into their offering. This helps connect traders and allows them to coordinate transactions without an ID or the account verification process.
  • Prepaid cards

    Another way to buy crypto without your ID is to use a prepaid card to trade on a platform that doesn’t require account verification or proof of ID. Exchanges like these seek to provide anonymity for their users, but this comes at a risk. You should be aware that these exchanges may be shut down at any time by legal authorities of their operational jurisdiction for flouting AML/KYC regulatory rules.

You can also purchase Bitcoin without an ID via Bitcoin ATMs. However, the downside is that these machines are not commonplace and often sell Bitcoin at a 5-10% markup rate.

How do I Provide Crypto Exchanges with my ID?

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Most crypto exchanges will require you to upload your ID for authentication purposes and access to their platform’s full functionality. These crypto exchanges often expect you to send scans of your ID, which contains all of your unique personal data. Different crypto exchanges have various information requirements for this purpose. You must identify the exact information needed by your crypto exchange.

For example, to provide Catalyx with your ID, click the ID verification tab at the top right corner of “My Dashboard” and type in the following details: first name, last name, date of birth, address, and occupation. On the next page, you have to upload a government-approved identity card, such as a driver’s license, passport, or permanent residence card. Once you upload the document, you will click on the next page to take a selfie video recording to complete the ID verification process.

AML and KYC processes of crypto exchanges are mandated by crypto regulatory laws and focused on preventing the proliferation of financial crimes. Although the idea behind these concepts is benevolent, bad actors can exploit system vulnerabilities to steal user’s information. It is paramount that you do your due diligence to verify the platform’s security protocols and data breach prevention policies before committing to any crypto exchange.

This blog is for informational purposes only.
This does not imply or suggest investment in cryptocurrencies.



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