What is KYC (Know Your Customer)?
Identity verification requirements that regulated financial services, including most Bitcoin exchanges, must collect from their users. Required by law in most countries as an anti-money laundering measure.
Why It Matters
KYC represents the interface between Bitcoin and traditional finance. Because Bitcoin is pseudonymous, governments require exchanges to verify customer identity to comply with anti-money laundering laws. KYC creates a permanent link between your identity and your exchange account, but allows you to buy bitcoin with dollars or deposit to your bank account. KYC is also the point where governments can potentially surveil Bitcoin adoption and transactions. For people who want maximum privacy, KYC is the tradeoff required to access traditional finance. Non-KYC options like peer-to-peer exchanges exist but are less convenient and have less liquidity. Most investors accept KYC for the convenience of major exchanges.
How It Works
When you create an account on a regulated exchange, you provide legal name, address, date of birth, and other identifying information. The exchange verifies this through background checks, government ID scanning, and sometimes video verification. Once verified, you're assigned KYC tier that determines how much you can buy. This identity information is stored on the exchange's servers, creating a record linking you to your bitcoin. If you move bitcoin off the exchange to a non-custodial wallet, you break that linkâyour subsequent transactions are pseudonymous. However, the exchange maintains the record of your initial purchases, which governments can subpoena.