KYC Verification for Cryptocurrencies: What It Is and How to Pass It?

KYC Verification (Know Your Customer) is a process to confirm your identity as a customer of a cryptocurrency exchange or financial service. The exchange will ask you to provide them with some form of identification (such as a passport), proof of your address, and a photo of yourself holding the identification document to confirm that you are not a bot or money-laundering fraudster.

KYC verification has three main purposes:

1. To prevent fraudsters from using accounts to perpetrate hacking or scam schemes
2. To comply with regulatory requirements. This is important to protect the exchange from regulatory fines or revocation of their license due to large transactions that raise red flags
3. To help protect users. Support representatives can only help restore access to hacked accounts if they have verified the owner's identity.

A study conducted by Chainalysis in 2024 indicates that now nearly 73% of the largest cryptocurrency exchanges require KYC verification from all customers—regardless of the amounts they are trading. This is due to tightening regulations across Europe, the United States, and Asia. Starting in 2025, it will also be a law enforced by the Central Bank of Russia.

For example, in January 2024, a user of the Binance exchange could trade without completing KYC verification; however the user would only be able to withdraw up to 0.06 BTC each day. Once the user completed KYC, the withdrawal limit increased to 100 BTC per day, and futures, new listings, and other benefits were available to the customer. The KYC verification process only took 8 minutes to complete (The user needed a passport, a photo of themselves holding the passport, and a document to verify their address). In just three months, the user succeeded in arbitrage thanks to previously unavailable tools and made a profit of $12,000.

One of the most important things about KYC in the cryptocurrency industry is the fact that KYC is not just a paperwork process but rather a way to build credibility in the industry and help to attract larger institutional investors, funds, and legitimate companies. The process of validating and verifying the identities of cryptocurrency clients has made it possible to have greater levels of confidence in the cryptocurrency market. This has led to the successful launch of Bitcoin ETFs in America by BlackRock and Fidelity, such as in 2024.

KYC provides security for all users of cryptocurrency. Studies by CoinGecko show that exchanges with KYC in place have seen a 40% reduction in hacking incidents and 1.6 times fewer scam reports.

As an example: When the FTX exchange went down in 2023, the verified clients were the first to receive their funds back while the anonymous clients were the last to be reimbursed. Many of them are still waiting for their funds. KYC is the way we protect ourselves as users.

It is also important to remember that banks will require you to provide documentation to prove the source of the funds when you wish to withdraw more than a set amount of money from an exchange. The most effective way to show the legitimacy of your money is to be verified on that exchange. Otherwise, the transaction may get flagged and be blocked.

The Regulatory Environment and Legal Obligations

The Legal Framework: The Major Regulations (FATF, AML, and Russian Legislation)

When we consider the laws, the process of KYC verification must meet all of the international and local regulatory requirements (FATF, AML, etc.) as established by the applicable laws of your home country, or wherever the exchange is located. The FATF implemented the "Travel Rule" in 2019, which requires that if an exchange conducts any transfer in excess of $1,000, that exchange is required to obtain KYC information on both the sender and the receiver. KYC is an essential part of this requirement and without KYC, the exchange risks losing its license to operate.

The key tool for fighting money laundering is Anti-Money Laundering (AML) legislation. AML rules classify cryptocurrencies as financial institutions similar to banks. Therefore, in Europe, since 2020, Crypto exchanges must follow the same AML regulations as banks, including KYC responsibilities. In the USA, the Financial Crimes Enforcement Network (FinCEN) monitors and reports on compliance with these KYC obligations.

In Russia, with the law "On Digital Financial Assets and Digital Currency" coming into effect in 2025, all companies providing Crypto services must register as financial institutions with the Bank of Russia and have their identity verification (KYC) processed, retain records of their KYC data for five years and report any suspicious activity. If a company does not comply with these laws, they face fines of up to 1 million rubles and potentially face criminal prosecution.

As an example, in 2024, two exchanges lost their licenses because they did not conduct KYC on their customers. Therefore, their customers were unable to access their assets, which is an obvious reason companies should perform identity verification on their customers.

The MiCA regulation, which went into effect in 2025, applies KYC regulations uniformly across countries within the European Union. Thus, once a customer completes KYC on one exchange, that KYC result will be accepted by any other exchange within the EU.

Reason Crypto Exchanges Need KYC

Exchanges do not require KYC to create more bureaucracy; they need to operate legally within regulatory constraints. If an exchange does not operate in a KYC-compliant manner, it is subject to substantial fines, and often loses its license to conduct business. As an example, the U.S. exchange Bittrex was fined $53M in 2023 due to its inadequate KYC processes and subsequently withdrew from the market. This should serve as a warning to other exchanges.

In addition, KYC is a tool used to protect exchanges and customers from fraud. Fraudulent account creation for the purpose of stealing from or defrauding customers is why many exchanges require identity verification. The rule of "one person, one account" minimises the risk while increasing the fairness of the market.

Many banks require KYC in order to send and receive fiat currency from a cryptocurrency exchange, and serious banks will not send fiat currency to an account of which the identity has not been verified.

An example from ASCN.AI: A customer could not withdraw more than 0.06 BTC from Bybit without a KYC verification. During the flash crash of October 11, 2024, the spread between exchanges was around 40%, and the only way to make profit from this spread was to have verified identity before being able to withdraw. In two to three hours they made $1,800 – an example of how KYC allows you to take advantage of the opportunity when it presents itself.

KYC is also about an exchange's reputation. If an exchange has KYC checks, it will attract large investors/traders who place a premium on security. The existence of an anonymous exchange will always create a level of risk and suspicion.

How the KYC Verification Process for Cryptocurrencies is Conducted

Documents and Data Required

The required documentation for KYC is typically:

• ID Document: A government-issued identification document, such as a valid national ID card or passport with photo that can be verified, is needed to meet KYC requirements.
• Selfie with ID Document: An applicant must take a selfie with their identification document and provide this to the exchange for verification. Additionally, some exchanges require applicants to hold the document in front of their face and write the date and exchange name on a piece of paper for anti-fraud protection.
• Proof of Address: A recent (within the past 3 months) copy of a utility bill, bank statement, or written rental agreement showing both name and address.
• Other Information: Email address, phone number and verification as to how large sums of money were received.

Photos must not only be clear but must be a minimum of 300-dpi in JPEG, PNG or PDF file format, no shadows or glare; four corners of photos must show and readable text. Some common errors with photos include: poor lighting, fingers obscuring corners, expired documents, selfies taken with filters/glasses, and discrepancies between the document and application form.

Take photos during daylight hours, if possible, using a dark solid surface as your background. It is best to use the main camera on your phone as opposed to the front camera. Also, it is always helpful to check your photo quality. In fact, approximately 80% of all KYC rejections are caused by photo issues.

KYC Process Flow (Registration, Documentation, Verification)

KYC (Know Your Customer) typically takes anywhere from 10 minutes to 48 hours depending on the exchange and the quality of your documents but follows a standard process that typically includes the following steps:

1. Registering of Account – Register your email address and password. At this step, your account is not fully active for trading until your KYC documentation has been verified.
2. Filling In the Questionnaire – You must complete your full name, date of birth, address, and telephone number—this must match exactly with the info on your documentation.
3. Documentation Upload – After completing the questionnaire, you will be required to upload copies of your passport and a photo of yourself (selfie). In some cases, you may also be required to upload a video verifying you are a living person.
4. Automated Verification – There will be an automated check performed on your uploaded documentation using optical character recognition (OCR) technology and facial recognition (biometric) technology to ensure your photos match.
5. Manual Verification – If the automated check does not verify the documentation, a KYC representative will review your application. This could take anywhere from several hours to two days.
6. Final Outcome – Your KYC application will be either approved or rejected. If it is rejected, you may correct any errors and resubmit your application.

For example, if a customer's application to open a Bybit account was declined due to glare from the customer's passport, it took the company 48 hours to process the rejection, but during that time, the price of Bitcoin increased by 12%. This is why it is important to do KYC before placing a trade.

Reasons People Get Rejected

Getting declined is a common occurrence because, for example, about 25% of Binance users' initial applications do not get approved. There can be two reasons for being declined: technical and non-technical issues.

Technical Problems

The most common technical reasons for a rejection include:

• Poor quality photos (e.g., blurry, glare, cropped edges)
• Unsupported file format (e.g., heic instead of jpeg)
• File size too large (typically 5 mb)

Non-Technical Problems

The four most common non-technical reasons for being declined are:

• Information on your KYC questionnaire does not match information provided on your documents
• Your documents have expired
• You submitted documentation that belongs to someone else (the system will pick this up immediately by using biometrics)
• If you need an English translation of your document and it is missing, it may result in rejection
• They have jurisdiction over you because you reside in a sanctioned region or are located in a country that is not supported.

What to Do if You Are Rejected

If you receive a rejection, you should take time to review the documentation and correct the problem(s) that caused the rejection. You should then resubmit the documentation to the system for resubmission or contact support if you are still having problems. A different document or exchange may resolve the issue.

Warning: If you attempt to deceive the system, the result will be a permanent ban from all exchanges, plus the possibility of criminal charges.

Advice on Completing KYC

Preparing Your Documents

• Ensure the documents are valid for at least 3 additional months beyond the photo date of intake.
• Take your photo in daylight and avoid using flash; use a plain black background.
• Ensure all four corners of the document are included in the frame by taking your picture directly perpendicular to the document (no angle).
• Once the photo is taken, ensure it is good to be read. Zoom in to see whether or not it is clearly readable.

Take selfies on the main camera — no filters or glasses — while holding your passport next to your face.

Your proof of address should be prepared before doing your KYC (utility bill, rental agreement, a bank statement that is no older than 3 months).

Always ensure you keep copies of all your KYC documents; there are times when you will need to re-upload your documents.

Life hack: If you pass KYC verification on every exchange where you plan on using the exchange, you will save time and hassle when it is critical for trading.

Tips to Fill Out Data Accurately

Written data should match your passport identically (including names, the order of names, etc.), and follow the date format required by the exchange.

Your address must match your proof of address and your passport.

Ensure you double check your email and phone number; receiving notifications is critical.

Make sure you use the proper country code and the country of citizenship.

When filling out Full Name do not include special symbols, abbreviations or emojis.

When you finish your questionnaire read it aloud to yourself; it will make spotting mistakes easier.

An example of a common rejection: Address in the application form does not match the stamp in the passport.

What to Do When Your Verification is Denied

Refer to the email you received regarding the reason for your verification denial.

Make corrections to the errors you have identified (new pictures, expired documentation, check against the data again).

Reapply again for KYC; there are usually no restrictions on how many times you can reapply.

If you continue to have problems with your KYC, contact support about your particular issue.

Try using a different type of documentation such as a driver's license or an international passport. If you are experiencing issues with your verification process, you may want to look for a different exchange that offers alternative verification algorithms.

Example: A Binance customer experienced trouble when uploading a USSR Passport, as the OCR system was unable to identify it. They eventually were able to pass KYC by submitting a modern driver's license.

Identification and Verification Technology used for KYC

Most modern exchanges will use automation for Identification/Verification.

OCR

OCR is the abbreviation for Optical Character Recognition, and refers specifically to using machines to read text from documents and eliminate the risk of human error in the reading of these documents.

Biometric Identification/Verification

Biometric Identification/Verification is a process where an individual's photo and a digital photograph of them are compared to each other. If there is a match of between 90 and 95 percent, there is an assumption that the individual is who they say they are and that they will automatically pass KYC.

Liveness Detection

A liveness detection check involves an applicant performing certain actions such as blinking their eyes or turning their head while they are having their photo taken, and/or saying a specific word, to prevent a photograph/video from being used to deceive the process.

Document Verification

A third type of verification that many exchanges perform is Document Verification, which includes confirmation that watermarks, holograms, and other verification/security elements on the document are accurate.

AML Screening

AML Screening is a process where an applicant's KYC information is compared to lists of People on Sanction Lists and those classified as Politically Exposed Persons (PEPs).

While the use of automation has added speed (a matter of minutes), scope and accuracy to the KYC process, automated systems can also be problematic when the OCR systems misidentify older documents, or when biometrics misidentify individuals due to rapid changes in their appearance. In these cases, the verification process must be completed manually, with the likelihood of additional delays in processing.

An example of an individual who was unable to pass verification was an applicant for KYC who was attempting to submit their application with documentation showing their identification with a USSR Passport. After three hours of manual review, the individual submitted an application with a modern driver's license and was able to pass the process quickly. In summary, OCR and Biometric Identification/Verification Technologies save the applicant and the exchange time and frustration in the KYC process.

How will your security and personal data be protected?

Our encryption guarantees end-to-end encryption for all data in transit and once it has landed at its final destination. If anyone should hack into our database, the data that they acquire will be completely useless to them.

All our legal exchanges comply with the European General Data Protection Regulations (GDPR), passed the International Organization for Standardization (ISO) 27001 certification, and conduct ongoing independent audits of all operational aspects.

Only authorized and specifically identified personnel are granted permission to view the data and continually monitored and controlled during day-to-day operations by our operational monitoring system.

If legally permissible, a person's data may be deleted upon the request of that individual, usually within thirty (30) days.

If you have concerns for your safety, we recommend you choose exchanges which have an established reputation and possess adequate certification.

To prevent phishing, always check the address of the website and avoid clicking on any links you do not trust.

In the event you suspect a phishing attack, consider using a temporary e-mail account, but be aware of the difficulty of regaining access to your trading account.

In 2022, there were reported leaks of KYC records that totalled over 100,000 from one trading platform, while Binance and Coinbase experienced no such incidents.

Please note that the information we provide in this article is not a definitive guide or resource for information security, so you should consult with an information security professional.

Frequently Asked Questions regarding KYC verification in the cryptocurrency markets

1) Can I trade cryptocurrencies without providing my personal information (KYC)?
Yes, you may trade in the cryptocurrency market without providing your personal information; however, there are significant restrictions.

2) Can I trade on Binance without providing KYC?
Yes, you may trade on a spot basis on Binance without KYC; however, you will be limited to a withdrawal amount of 0.06 BTC (approximately USD 2,500) per day.

3) Can I trade on Bybit without KYC?
Yes, you can trade on Bybit without KYC, however your withdrawal limit will be capped at 2 BTC daily, and you will not be able to access margin and futures trading services.

Decentralized Exchanges (DEXs) can be used without having to complete any Know-Your-Customer (KYC) regulations; you can simply send money directly from your crypto wallet to a DEX. The downside to using DEXs is their high transaction fees and that they do not permit any type of fiat transactions.

Unlike DEXs, KYC-completing your exchange account allows you to withdraw large amounts from your account. In addition, funds held at DEXs cannot be frozen unless requested by the DEX. If you do allow your account to be hacked, there is no protection for your assets. Furthermore, working with exchanges that do not KYC may be exposing yourself to increased risks associated with working with underground schemes. Therefore, if you intend to run a serious business, you will still need to confirm your identity.

Example: A trader received $50,000 worth of cryptocurrency on a DEX, with no completed KYC; the trader attempted to withdraw the funds to his credit card, but his bank denied the transaction because it couldn't prove the source of the funds. This caused lengthy correspondence.

KYC can take a variety of lengths of time.

Automatic check process (OCR + Biometrics): is typically completed in less than ten minutes. For example, 87% of Binance applications were approved almost immediately in Q1 2025 via this method.

Manual review: In instances where there are issues, it can take between 2–48 hours to receive a completed review of an application. This time frame greatly depends on the amount of workload being handled on the specific day.

In-depth verification process: If you are applying for a larger sum of $10,000+ or a larger amount of $5,000, you may take up to one week to complete the review process, including potentially video consultations with the exchange along with notarization of documents.

Our advice: complete your KYC process prior to the peak trading times of a given market.

ASCN Case Study: During the flash crash of October 11, 2024, clients who had already completed their KYC process earned between $800–$3,000 within a few hours of trading and were able to take advantage of the opportunity while less experienced/trained clients were stuck waiting for KYC review completion.

Does KYC reduce anonymity?

The most important part of KYC is that it assures and protects the legitimacy of your trades with a given exchange. By completing KYC, you are eliminating the anonymity on a given exchange and are providing personal information, such as name, address, date of birth, and transaction history. The exchange is required by law to provide this information to regulatory authorities (for example, Rosfinmonitoring, FinCEN, or IRS). It is important to note that while the use of the blockchain allows you to create pseudonymous wallets, a regulatory authority may be able to link your wallet address to your identity through the provided exchange.

If you want to maintain a level of privacy while using a DEX, you can utilize mixing services, such as Tornado Cash or CoinJoin, but exchange regulations may likely restrict you from withdrawing any funds that were directly deposited through a mixing service.

If privacy is of primary importance to you, the best option is to utilize the services of a DEX and use a Digital Currency that provides the optional level of privacy (for example, Monero or Zcash). You should also keep in mind the restrictions that come with using Fiat Currency on DEXs and with Privacy Tokens.

A trader who completed KYC and legitimately paid taxes on his income in excess of $100,000 lost his anonymity during the process.

Conclusion

In summary, KYC verification is a critical tool for securing and legitimizing your cryptocurrency trading activities. It provides protections against fraud, grants complete access to exchanges and their full functionality, provides a way for you to comply with applicable laws, and gives you the ability to work with Banks without issues.

Without completing KYC, you have limited access to use the services provided by any given exchange, and you increase your risk of losing funds if your account is hacked. By completing your KYC and providing proof of your identity, you gain greater access to control over your funds and will have the ability to work with larger amounts of Money.