What is KYC? Why Do Exchanges in India Need KYC to Open An Account?

Know Your Customer (KYC) is one of the most debated topics in the blockchain and crypto industry. While the nature of blockchain and crypto is decentralized and anonymous, KYC aligns more with a controlling point of view. There are divided groups online, with some supporting KYC and others opposing it. However, there is no denying the impact and importance of KYC in the crypto space.
KYC comes into play when certain entities try to create a smooth and comprehensive ecosystem—such as exchanges—to trade crypto outside of decentralized exchanges (DEXs). The main goal was to provide a user-friendly interface and push for a more mainstream adoption, where even an average person can trade and invest in cryptocurrencies.
As exchanges grew globally and began surpassing DEX volumes by 10-20x, certain challenges emerged. Countries like the United States and those in the European Union sought to regulate and organize digital finance, leading to the introduction of crypto regulations. Now, in most countries, you must verify your identity with a government-issued ID to prove you're a real human being.
This process has helped curb the unregulated use of crypto for money laundering and illegal activities, but some believe it also compromised the core principles of cryptocurrencies—privacy and permissionlessness.
TL; DRKYC (Know Your Customer) is a process where users must verify their identity on crypto exchanges with government-issued ID to comply with regulations.
Benefits of KYC include increased trust, fraud prevention, and compliance with AML (Anti-Money Laundering) and CFT (Counter-Terrorism Financing) laws.
Criticism of KYC centers on how it undermines the privacy and decentralization principles of cryptocurrencies.
KYC Misconceptions include the belief that it gives governments full control or that it makes user data public—when in reality, data is stored privately and used for regulatory purposes only.
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What is KYC in crypto?Typically, during the KYC process, you’ll need to submit a government-issued ID and proof of address. Some exchanges might even ask for a selfie/video for liveliness or biometric data for extra security.
KYC, or Know Your Customer, is an advanced verification process used by financial service providers to confirm the identity of a person. It ensures that businesses, especially financial institutions, verify the legitimacy of their clients and assess potential risks.
Cryptocurrencies have always been permissionless and decentralized by nature. However, as they spread globally, governments sought to curb illegal activities and the use of crypto by terrorist organizations by implementing regulations. In regulated countries, users are now required to verify themselves through KYC. Initially, exchanges did not have KYC requirements, but after regulations were introduced, they began offering advanced user verification through KYC.

✅  Documents Required For KYC Processes
> Driver’s License / Government-issued photo ID
> Passport
> Social security number
> PAN card
> Voter ID Card
Why Do Crypto Exchanges Need KYC in India? Crypto exchanges are like digital banks, similar to traditional banks, and they require customer information to provide advanced services. There are many hurdles an exchange faces when offering non-KYC financial services. The Indian government has made KYC a mandatory requirement for exchanges serving Indian customers — it benefits both the exchanges and the broader ecosystem:
🔸Trust: KYC procedures ensure that every participant on the platform has been vetted, stimulate a higher level of trust between users and the exchange itself.
🔸Security and fraud prevention: By verifying the identity of every user, exchanges significantly reduce the risk of fraud, theft, and hacking. Knowing who is behind each transaction makes it harder for malicious actors to exploit the platform.
🔸Regulatory compliance: Like traditional financial institutions, crypto exchanges are required to follow Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations. Complying with these laws helps them avoid legal issues and maintain a legitimate business reputation.
🔸Preventing illegal activity: KYC ensures that exchanges aren't being used for illicit activities such as money laundering, terrorist financing, or other criminal enterprises, making the ecosystem safer for everyone.
🔸Limiting fake accounts and bots: KYC processes help prevent the creation of fake accounts or the use of bots to manipulate markets, ensuring a more transparent and fair trading environment.
🔸User accountability: If something suspicious happens, the exchange can quickly identify and contact the individual responsible, holding users accountable for their actions and preventing anonymity-based abuse.
🔸Faster issue resolution: With user information on file, exchanges can address issues or disputes more efficiently, helping to resolve problems like fraudulent transactions or account access faster.
🔸Improving market integrity: By enforcing KYC, exchanges create a more secure and transparent environment, which boosts the overall integrity and reputation of the cryptocurrency market.
Some Myths & Misconceptions Around KYC KYC is Optional on All Exchanges: Many believe KYC is optional everywhere, but major exchanges are increasingly enforcing KYC due to regulatory pressures.  Decentralised exchanges (DEXs) or small platforms may not require KYC, but most centralized exchanges (CEXs) do.
KYC Means Full Control by Governments: While KYC requires personal information, it doesn't necessarily mean governments have full control over users' funds or activities. KYC ensures compliance with laws (like AML/CFT), but privacy rights still exist depending on local laws.
KYC Violates the Decentralization: Some argue that KYC contradicts the decentralization ethos of crypto, but this applies mainly to centralized exchanges. Decentralized protocols often don’t enforce KYC, though they may still face future regulatory scrutiny.
Exchanges Can Seize Funds Anytime: Some believe completing KYC allows exchanges to seize or freeze funds at will. While KYC enables better regulatory compliance, exchanges cannot arbitrarily seize funds unless there's legal or regulatory action.
Unnecessary for Small Transactions: Some think that KYC is only for large transactions, but many exchanges require KYC regardless of transaction size to meet regulatory standards.
KYC Prevents All Fraud : KYC reduces fraud by verifying identities, but it does not completely eliminate illegal activities like money laundering or fraud. Bad actors may still find ways to misuse the system.
KYC Information is Publicly Available: There's a misconception that KYC data is visible to everyone once submitted. In reality, exchanges store this data privately and share it only with authorities if legally required.
✅ What is AML and CFT? 
AML (Anti-Money Laundering) and CFT (Countering the Financing of Terrorism) are critical frameworks to prevent illegal activities within financial systems, including cryptocurrency exchanges. 
Both require strict monitoring, with AML focusing on stopping the flow of income from illicit activities like drug trafficking or fraud, and CFT ensuring financial systems are not used to fund terrorism. They both rely on KYC (Know Your Customer) processes to verify user identities and monitor transactions for suspicious activity, helping prevent these platforms from being exploited by criminals.
How Indian Users Verify KYC In Binance Binance is now fully regulated under FIU, India's legal entity. This permits it to operate fully in India, and it is compulsory for Indian users to complete KYC on Binance. Let’s check out this easy guide —you can verify your account KYC in under 5 minutes...
1. Log in to your Binance account and tap [Verify] or [Verify Identity] on the homepage.
2. Select India as your country of residence. You'll see a list of available Binance products and the required verification levels. Tap [Continue]. Make sure the country matches your ID documents.
3. Choose your nationality and tap [Continue].
4. Verify your identity through Digilocker or Aadhar OTP (recommended), or upload an ID document (Aadhar Card, Voter ID, Driver's License, Passport). Digilocker and Aadhar OTP don't require uploading documents or face verification.
> For Digilocker: Link your account, and allow it to share your Aadhar Card and PAN for KYC.
 > For Aadhar OTP: Enter your Aadhar number and verify it using the OTP sent to your linked phone and email.
🔸If you upload an ID document, follow the instructions to take clear photos. You'll need to do a liveness check—center your face in the frame and follow the prompts.
5. Provide your PAN details if you haven't already done so through Digilocker or Aadhar OTP.
6. After completing the process, wait for Binance to review your data. They will notify you via email once verification is complete.
🎟️ Some Goodreads 
> Official Guide For KYC in Binance 
>  How To Buy Best Coins During Dumps
> Dark Skippy Can Steal Your Bitcoin Even From Hardware Wallet
> The Decentralized AI landscape
▶️ Data Credit 
> Binance Blog 
> Coindesk
> Investopedia
> Hindustan Times