KYC was created as a response to anonymous owners of cryptocurrency. According international banks agreement “Travel rule” every financial organization must know who and whom they transfer money. It helps to fight illegal transactions and financing terrorism.
When crypto exchanges were decentralized (DEX) many government regulators were trying to ban them for his anonymity. But when exchange became centralized (CEX) government regulators required to deploy the verifications process or they will ban them. And companies start to create different processes of verification, given the common name “Know your customer” (KYC).
Today only the biggest crypto companies created KYC. The middle and small size companies didn't. It helped to save their clients. Some companies even attract new clients, promise won’t deploy this process in the future. But it means that these companies won’t get a legal license and can’t to working with legal finance institutes.
The simplest and most popular way to verify is to send SMS to the phone. Another - take a photo with your ID card and your crypto wallet number. Also can use a private driver's license or passport. Another way is Face ID. In online mode, you must film yourself on camera, following the tips.
But all these ways are not reliable. And companies don't hurry to improve this process because fearing that many clients unfollow them. A good example here is Binance. It welcomed government oversight. At the same time, the firm was withholding information from regulators, maintaining weak checks on customers, and acting against its own compliance department’s recommendations, a Reuters investigation has found.
But on the other hand, some countries have been watching closely for this process. In South Korea, the crypto exchange Bithumb has banned the transfer of crypto assets to unidentified wallets. All other exchanges in the country must do the same by March 25, 2022. Users can now only register their personal wallets. When registering, users will have to undergo KYC verification, meaning they will be required to take a picture of their wallet number along with their ID card.