What Is KYC?

Sign up for almost any Bitcoin exchange and within a few minutes you’ll be asked to verify your identity. Upload your passport or driving licence. Sometimes take a selfie. Sometimes answer questions about where your money comes from.

This process is called KYC — Know Your Customer. It’s a legal requirement for regulated financial businesses in most countries, not something exchanges invented to be annoying.

The reasoning is straightforward: governments want financial platforms to know who their users are. This is meant to prevent money laundering, tax evasion, and the financing of illegal activities. The same requirements apply to banks, brokers, and most other financial services.

For most people using Bitcoin for legitimate purposes, KYC is a mild inconvenience. You submit your documents once, wait a day or two for verification, and you’re done.

It’s worth knowing what this means in practice though. Once your identity is linked to an exchange account, your purchase history on that platform is associated with your name. Regulators can request that data. Some people care about this. Others don’t.

For those who care about privacy, there are ways to acquire Bitcoin without KYC — peer-to-peer platforms, Bitcoin ATMs, in-person trades. These are more complex and less beginner-friendly, but they exist.

For most people starting out, a regulated exchange with KYC is the straightforward path. Understanding what it is — and what it means — puts you in control of that decision.

Tomorrow: how the actual purchase works — step by step.

— The Daily Bit