I noticed while exploring this very exciting NFT space, there are many new words to learn and without the knowledge of them, you won’t get very far. It could be a bit confusing and much to see terms like KYC, HODL and more. But those terms are the building blocks to communicate with people digitally and just belong in this world.
In this upcoming blog series on my site I’ll explain in an easy peasy way what every word means and what you can do with it. In every blog you will find an explanation, handy links and a Youtube link for more information about it. Short, sweet and simple!
You can always have one place to learn about all you need to know when you start, just like me now, to come to and truly understand what every slang word means!
From A-Z, NFT Lingo explained!
What Is KYC?
KYC is an acronym for “Know Your Customer.”
It refers to the obligation of a financial institution (such as a bank) to perform certain identity and background checks on its clients before allowing them to use its product or platform.
This way a financial institution has more certainty about the means of a customer, for example if it’s not being used for money laundering.
How does this translate to Crypto and the NFT world?
KYC is one of the most significant regulatory challenges that cryptocurrency firms have had to overcome in recent years.
The decentralized economy is likely to be vulnerable to KYC issues by definition.
Many decentralized services are designed to keep customers anonymous and their personal information safe from any central authority.
As a result, many crypto firms are unable to identify who their customers are, which regulators find unacceptable.
For crypto exchanges, KYC is a way to identify and confirm that a customer is who they say they are. It’s a multi-step process that helps to prevent the creation and use of fraudulent accounts.
Some of the most popular cryptocurrency exchanges including Coinbase, Binance, Kraken, and Gemini abide by KYC regulations to stay compliant with the law.
That is why you will notice that many crypto exchanges require your name, DOB, address, a copy of your ID, as well as a picture of you holding your ID to prove it’s not stolen.
It goes without saying that there are many pros when it comes to KYC in crypto, including:
- KYC limits fraud caused mostly by identity hiding
- KYC prevents money laundering and other illegal financial behavior
- KYC increases the country’s stability and investment by making the financial structure more trustworthy and less volatile
- KYC reduces the uncertainty and helps institutions to lend more to clients while increasing profits
- KYC helps investors assure the security of their personal data and prevents fraudsters from gaining access to their accounts
- KYC enables clients to recover their accounts if access is lost
- Without KYC, vendors have no idea who their consumer is, making it impossible for them to defend themselves from harmful behavior.
KYC doesn’t only benefit exchanges and the government, more importantly, they protect the customers who are using these crypto exchange platforms.
From assisting in a swift recovery of stolen funds to allowing customers to exchange larger sums of money in a single transaction, KYC is beneficial for everyone.
What are the cons of KYC in crypto?
Given the digital state of crypto, and all that’s involved in the new digital economy, some may argue that KYC has cons as well, such as:
- KYC is seen as an extra hurdle to accessing the cryptocurrency and Web3 space. This makes it less adoptable and it is less easy to work with. May feel a bit frustrating.
- Users have a concern about the privacy and security of their personal data as a result of the KYC procedure. You need to upload your ID or give away a lot of information about yourself.
- There’s a preference to not DOX yourself in the NFT space for some artists, rightfully so. The privacy you actually gain to use decentralized platforms is always better for yourself in the end, because digital privacy is a new luxury in these days.
What are the pro’s of KYC in crypto?
- It is a more regulated and centralized way of doing your finances
- It could give you a sense of trust and comfort because you are already used to doing your finances this way.