Know your customer verification has been an approach used by most cryptocurrency exchanges to comply with regulatory requirements and to know the identity of their customers.
When the idea of KYC was introduced, many cryptocurrency users were not comfortable with it. Some investors refused to pass through the verification because they wanted to protect their identity. As time goes on, investors have no other choice than to pass through the know-your-customer verification. This is because they won't be able to use the full features of the exchange if they are not verified.
How Has The Idea Of KYC Helped The Crypto World?
The crypto world has been fighting various scams since its inception. Scammers hide under the decentralized nature of Crypto to carry out their evil acts. With KYC in place in most exchanges, they are thus unable to convert the stolen funds to fiat in most cases. Traders in centralized exchanges are also conscious of the money movement they engage in because the government, through the help of exchanges, can track their activities.
Secondly, the Know Your Customer verification process has helped to improve the security of trades such as peer-to-peer trading. The condition of verifying oneself before being able to participate in peer-to-peer trading has paved the way for a secured peer-to-peer transaction.
Know Your Customer Verification might not be privacy-preserving but it is something that has helped improve the crypto world. It is understandable when people are not comfortable doing KYC. We have seen some centralized exchanges getting compromised and users' data stolen.
A better approach to Know Your Customer Verification is the use of Reusable KYC. This KYC approach follows the Zero Knowledge proof mechanism to verify a user's identity in various institutions without releasing much information. A user will verify his identity with a trusted provider and then he is issued a credential showing that his identity has been verified.
This identity is thus used in various organizations for verification. The difference here is that these organizations won't be able to see much information other than that his identity has been verified.
Reusable KYC offers the following advantages; Improved data security, enhanced customer experience during verification, and time and cost savings. To crown it all, the user still retains control of his data and he decides who gets access to them.
In conclusion, KYC has helped reduce scammers' activities in centralized exchanges. It is a good thing but improving it through zero knowledge credentials will make it more privacy-preserving.