KYC (know your customer)

Know your customer (KYC) is the regulated process financial institutions use to verify who their customers are before providing services. It typically involves collecting identification, confirming it is genuine, and screening against sanctions and watchlists. In cryptocurrency, centralised exchanges and other regulated providers apply KYC when users open accounts, deposit, or withdraw, as part of broader anti-money-laundering obligations.

Why it matters

KYC is a front-line control against impersonation, account takeover, and the use of financial systems by criminals. For users it means custodial services can tie an account to a real identity, which supports fraud investigation and asset recovery but also creates a data trail. Because KYC requires sharing sensitive personal documents, the security practices of the collecting firm matter: breaches of KYC databases expose customers to identity theft and targeted scams. Users should provide identity documents only to established, reputable platforms and be wary of sites that demand full identification before offering any verifiable service, since fraudulent operators sometimes mimic KYC flows purely to collect sensitive data.

Common misunderstanding

KYC and AML are often used interchangeably. KYC is one component, focused specifically on verifying identity, whereas AML is the wider framework of laws, monitoring, and reporting aimed at preventing money laundering. Completing KYC also does not make a platform trustworthy; scam sites sometimes request documents purely to harvest personal data, so the presence of a verification step is not by itself a sign of legitimacy.

Related terms

See AML, custodial wallet, pig butchering and two-factor authentication.