Although most cryptocurrency exchanges have started to implement KYC mandates for investors, they still have the option of choosing crypto exchanges that encourage anonymity and don’t require KYC.
Many view implementing Know Your Customer tools in crypto as a deterrent against the Bitcoin ( BTC ) Standard, which has primarily promoted anonymous peer-to-peer transactions. Regulators continue to promote KYC and anti money laundering (AML), as a way to protect investors from financial fraud.
Although most cryptocurrency exchanges are now following regulatory recommendations in order to stay at the forefront crypto’s mainstream adoption and growth, investors still have the option to choose crypto exchanges that offer greater anonymity and don’t require KYC. However, does this mean that you compromise on safety if you choose to invest in the former?
In most cases, anonymity is both good and bad. Many owners of crypto exchanges that are not KYC-compliant (or non-compliant), prefer to keep their identities secret to avoid being investigated by the law. Investors must trust the people running the exchange.
Decentralized exchanges like dYdX, on the other hand use trustless protocols to establish a community-controlled trading system. This instills trust in investors, despite the fact that KYC is not required on the platform.
When trading on non-KYC platforms, it is important to monitor the platform’s track records and the people who run it.
Although traditional finance suits portray cryptocurrency as a tool for money laundering, illicit cryptocurrency transactions have declined over the past year. A Chainalysis study found that just 0.1% of all crypto transactions in 2021 could be used without KYC verification despite the ease of using them.
Furthermore, authorities can retrace the owners of transactions using immutable blockchain records. This further discourages bad actors from using cryptocurrency — both KYC and not-KYC platforms — as a means to finance their activities.
Because blockchain is permanent, authorities around the globe have been able to track down fraudsters, scammers and other criminals who committed crimes years ago.
The lack of control over assets is one of the greatest concerns when working with crypto exchanges. Cryptocurrencies that are stored on crypto exchanges require the transfer of the private keys.
Investors are at risk of losing their funds if they use unvetted cryptocurrency exchanges that do not meet KYC requirements. Both compliant and non-compliant crypto exchanges require that investors hand over their crypto assets and other financial information to third parties. However, KYC-compliant exchanges are more trustworthy for investors and regulators.
Understanding the above-mentioned nuances will answer the question “Are non KYC crypto exchanges secure?” Crypto investors are equally at risk from external factors, such as the intent and business practices of the owner, in addition not receiving any government backing.
Furthermore, there are limitations to the trading value, token availability, and other services provided by the provider when investing in a non-KYC cryptocurrency exchange.
Image created by Blockchain Marketing Firm Guerrilla Buzz