Definition
Know Your Customer (KYC) is the identity-verification process that regulated financial institutions and cryptocurrency exchanges are required to perform before they let a user transact. It is the operational front end of broader anti-money-laundering law: collecting and verifying a customer's legal name, address, date of birth, and government-issued identification so the institution can attest who actually controls an account. The Financial Action Task Force (FATF) frames KYC as part of customer due diligence (CDD) under its Recommendation 10, which asks institutions to identify and verify every customer, identify beneficial owners, and monitor activity on an ongoing basis.
Why exchanges require it
Custodial platforms hold customer funds and connect to the banking system, so they are treated as obligated entities under national AML regimes. Failing to verify customers exposes them to enforcement action, license loss, and being cut off from correspondent banks. As a result, virtually every regulated exchange now demands photo ID, a selfie, and sometimes proof of address before a withdrawal is permitted. KYC data is also retained and may be shared with counterparties under the FATF Travel Rule.
What it means for self-custody
KYC applies at the on-ramp and off-ramp, not to Bitcoin itself. Holding your own keys in a self-hosted wallet does not require identifying yourself to anyone. Many sovereign-minded users minimize their KYC footprint precisely because verified buy/sell records permanently tie an identity to on-chain addresses, which blockchain-analysis firms can then cluster.
This entry is educational and not legal advice. To understand how KYC fits into the wider compliance stack, see our entries on AML (Anti-Money Laundering) and the FATF Travel Rule.
In Simple Terms
Know Your Customer (KYC) is the identity-verification process that regulated financial institutions and cryptocurrency exchanges are required to perform before they let a user transact.…