The Necessity and Practical Guide of Identity Verification (KYC) in Cryptocurrency Trading

Understanding your customer (KYC) has become an indispensable verification mechanism in the modern financial system. Almost all mainstream cryptocurrency exchanges require users to complete identity verification processes. This article will analyze the importance of KYC, its operational principles, and practical steps.

Core Definition of KYC Identity Verification

Know Your Customer (KYC) is an identity confirmation mechanism widely adopted by banks, financial institutions, and cryptocurrency trading platforms to verify and collect users’ identity information and related data. The main goal of this process is to prevent fraud, money laundering, terrorist financing, and other illegal activities and violations in a timely manner.

In many countries, KYC verification has become an essential step for identifying users and collecting customer information. The security management of this data must comply with local legal requirements to ensure proper protection of user information.

Potential Risks of Non-KYC Exchanges

Zero-KYC cryptocurrency exchanges claim to require no identity verification, emphasizing user anonymity and privacy protection. These platforms typically operate in three modes:

1. Centralized Custodial Mode: The exchange holds users’ funds and private keys
2. Full Self-Custody Mode: Users have complete control over their private keys and assets
3. Hybrid Mode: Provides custodial or self-custody options depending on asset types

While these exchanges are attractive to users seeking anonymous trading or located in regions with lenient financial regulations, the risks faced by non-KYC platforms are increasing as AML, MiCA, and other global regulations become stricter:

Increased Fraud Risks: Lack of identity verification creates opportunities for malicious actors, leading to frequent fund theft and withdrawal scams

Regulatory Compliance Pressure: MiCA and other regional regulations are gradually shutting down non-compliant exchanges

Security Vulnerabilities: Insufficient security measures make these platforms easy targets for hacking attacks

Legal Protection Gaps: Inadequate user protection mechanisms make it difficult to obtain compensation in case of disputes

The Central Role of KYC Verification in the Cryptocurrency Ecosystem

Identity verification mechanisms ensure healthy market development through:

• Preventing Money Laundering and Illegal Financing: Identifying high-risk users and cutting off illegal fund flows
• Legal Compliance Across Countries: Ensuring exchanges meet regulatory requirements and avoiding legal risks
• Protecting User Assets: Preventing fraud through identity confirmation and safeguarding legitimate users’ rights
• Enhancing Market Transparency: Increasing traceability of transaction records and accountability mechanisms
• Building Institutional Trust: Establishing cooperation foundations with financial institutions and investors

Necessity of Identity Verification in the Vietnamese Market

Implementing KYC verification in Vietnamese cryptocurrency exchanges has multiple strategic implications:

Improved Regulatory Framework: The Vietnamese government is strengthening regulation over cryptocurrency activities. KYC has become a necessary condition for legal operation, helping platforms avoid legal risks

Prevention of Financial Crimes: Verifying user identities maximizes the reduction of illegal activities such as money laundering and fraud, protecting financial market stability

Protection of User Rights: Exchanges that implement KYC can more effectively prevent fraud and provide better remedies in case of trading disputes

Increased Market Transparency: Identity verification promotes more transparent and regulated cryptocurrency trading, boosting confidence among users and regulators

Sustainable Industry Development: Regulated KYC processes help attract domestic and foreign institutional investors, promoting long-term healthy development of Vietnam’s cryptocurrency ecosystem

Identity Verification Processes of Mainstream Exchanges

Contemporary mainstream cryptocurrency exchanges generally adopt a three-tier KYC verification system: intermediate verification, advanced verification, and professional verification. Users are required to provide the following materials in sequence:

• Personal basic information (name, date of birth, etc.)
• Identity proof documents (ID card, driver’s license, passport, etc.)
• Biometric verification (facial recognition)
• Address proof (utility bill or bank statement)

To increase transaction limits, users must also declare their source of assets and verify that they are not related to political figures. All major exchanges adopt the industry’s strictest KYC policies to ensure the safety of users and the entire ecosystem.

Complete Steps for Mobile Registration and Verification

Account Registration Stage:

Step 1: Download the main exchange app from the app store (Google Play or App Store)

Step 2: Open the app, click “Register,” select account type (individual or corporate), choose “Register with email or phone number”

Step 3: Enter email/phone number, create a password (at least 8 characters, including 1 uppercase letter and 1 number)

Step 4: Agree to the terms of service, click “Create Personal Account” to complete initial registration

Step 5: Enter the verification code received via email/phone to confirm registration completion

Identity Verification Stage:

Step 1: Log in to the app, click “Verify Now” on the homepage, or go to “Profile” to view “Pending Actions”

Step 2: Select your country/region of residence, click “Continue” to proceed with verification

Step 3: Accurately input personal information (must match identity documents exactly)

Step 4: Upload clear photos of identity proof (ID card, driver’s license, or passport)

Step 5: Follow system prompts for facial recognition verification (center your face, move as instructed)

Step 6: Wait for the exchange to complete the review and receive the verification result notification

Verification Tips: A single account can attempt verification up to 10 times within 24 hours. If verification is rejected, wait 24 hours before trying again. Do not exit the app during this period.

Deep Significance of the Identity Verification System

KYC has become a fundamental infrastructure of the modern cryptocurrency market. In emerging markets like Vietnam, where local regulations are still being developed, a regulated identity verification process is especially crucial. It protects ordinary users’ assets and ensures legal compliance of transactions.

Leading global trading platforms are committed to establishing more comprehensive KYC mechanisms, working with users, regulators, and financial institutions to promote sustainable, secure, and transparent development of the cryptocurrency market. Identity verification is not only a regulatory requirement but also a necessary foundation for building trust and protecting the market.