Cryptocurrencies are have never been more mainstream in India than in the last two years, with investors, especially, the retail ones pouring billions of rupees to own digital assets.
This comes amid a sharp rally in the virtual coins over the past few years. However, financial regulators across the world, including in India have warned of abuse of decentralised currencies and platforms.
India became the second-highest nation in terms of crypto adoption, as per market research firm Chainalysis, and given the current purview, experts believe that 2022 might arguably see India leading the world pack in deriving utilities from the decentralized disruption, provided the government takes a progressive regulatory stance. Today, India already has close to 15 million crypto investors.
India’s Reserve Bank of India (RBI) even went on to say that the cryptos have no underlying value, not even worth a “Tulip”. The central bank has also warned of damaging consequences on financial and macroeconomic stability. Due to the anonimity factors, as exchanges wouldn’t trace the transactions, regulators have also warned of misuse of crypto plaforms for terror financing and money laundering.
In the wake of this, increasingly, crypto platforms are asking their customers to fill Know Your Customer (KYC) details even though crypto services are meant to be decentralised.
What is KYC and is it important for crypto trading?
KYC means to ‘know your customer’ which is an effective way for an institution to confirm and thereby verify the authenticity of a customer. For this, the customer is required to submit all KYC documentation before investing in various instruments. Usually, financial institutions are mandated by the RBI to do the KYC process for all customers before giving them the right to carry out any financial transactions. Whether the customer uses KYC online verification or opts for offline KYC, this is a simple one-time process.
When it comes to KYC for crypto trading, even though it is not mandatory for investors to do KYC process for crypto trading, increasingly crypto exchanges and platforms are moving towards asking them to finish KYC.
In its essence, many decentralised services are designed to allow customers to remain anonymous and keep their personal information private from any central authority. This means many crypto firms are not able to identify who their customers actually are; something regulators do not find acceptable.
Even the most reluctant crypto firms have been compelled to introduce steadily more stringent KYC measures, as they face growing pressure and penalization from regulators. For instance, crypto exchange Binance announced in August last year that new customers would have to provide a government-issued ID and pass facial verification in order to make deposits and trades.
Getting done with KYC may help investors with complaints or in grievance redressing later.
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