Risks of Trading Crypto Without KYC Verification

KYC verification is an essential security measure for exchanges. It protects both client and company, and without it, there are many risks involved for both.
By 

Daniël de Jager

 on September 6, 2022. 
Reviewed by 

Joshua Genuth

Know Your Customer (KYC) verification is the process by which an institution verifies the identity of its clients before allowing them to perform certain actions on a platform. KYC is often found on cryptocurrency exchange websites. Most jurisdictions require all exchanges to implement KYC verification or face fines and license revocation.

Some crypto exchanges, like decentralized exchanges, accept the risk of ignoring KYC as a cost of doing business. If an exchange doesn't use KYC, it likely also can't document deposits and withdrawals. Without this documentation, governments may seek to shut down such exchanges as they are seen as hubs of criminal activity.

Such exchanges can easily "exit scam" with their clients' money since these exchanges are unregulated and subject to no one. Even honest non-KYC exchanges can be hacked with virtually no repercussions.

Crypto owners can choose to trade crypto directly with other individuals too. However, without the protection and accountability of a compliant exchange, it's easy to be scammed. As a general rule, OTC trades are also more expensive than mainstream exchanges.

Is It Possible to Trade Crypto Without KYC Verification?

Trading crypto over the counter without KYC or on a decentralized exchange can be done. However, these exchanges risk entanglement with the aforementioned perils. We recommend using an exchange that values the security of its clients and puts suitable measures in place.

When it comes to exchanges, it's advisable to use a fraud protection platform that prioritizes security and user experience. Adding KYC for government regulatory compliance is necessary, but it's a fine line—implementing too many KYC layers adds more potential customer friction and could chase away sales.