Cryptocurrencies have never been more mainstream in India than in the past two years, with investors, especially retail ones, pouring billions of rupees into owning digital assets.
This comes amid a sharp rally in virtual coins over the past few years. However, financial regulators around the world, including in India, have warned of misuse of decentralized currencies and platforms.
According to market research firm Chainalysis, India became the second largest country in terms of crypto adoption, and looking at the current scope, experts believe that 2022 will arguably see India pack the world in getting utilities out of decentralized disruption. could see the forefront, provided the government takes a progressive regulatory stance. Today, there are already around 15 million crypto investors in India.
The Reserve Bank of India (RBI) even said that crypto has no inherent value, not even worth “tulips”. The central bank has also warned of detrimental consequences on financial and macroeconomic stability. Due to factors of anonymity, since exchanges will not be able to trace transactions, regulators have also warned of misuse of crypto platforms for terrorism financing and money laundering.
In view of this, increasingly, crypto platforms are asking their customers to fill in Know Your Customer (KYC) details even though the crypto services are to be decentralized.
What is KYC and is it important for crypto trading?
KYC stands for ‘Know Your Customer’ which is an effective way for an institution to verify and thereby verify the authenticity of the customer. For this, the customer needs to submit all the KYC documents before investing in various instruments. Generally, financial institutions are mandated by RBI to perform KYC process for all customers before authorizing any financial transaction. Whether the customer uses KYC online verification or opts for offline KYC, it is a simple one-time process.
When it comes to KYC for crypto trading, even though it is not mandatory for investors to do the KYC process for crypto trading, increasingly crypto exchanges and platforms are moving towards asking them to eliminate KYC.
In its essence, many decentralized services are designed to allow customers to remain anonymous and keep their personal information private from any central authority. This means that many crypto firms are not able to identify who their customers really are; Not acceptable to some regulators.
Even the most reluctant crypto firms have been forced to consistently introduce more stringent KYC measures, as they face increasing pressure and penalties from regulators. For example, crypto exchange Binance announced in August last year that new customers would need to pass government-issued ID and facial verification in order to deposit and trade.
With KYC, investors can get help in redressal of complaints or grievances later.
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