What is KYC (Know Your Customer)?
Crypto Glossary Definition
A series of laws and regulations which require businesses to know the identity of their customers.
Why KYC (Know Your Customer) Matters
KYC — submitting ID and proof of address — is now standard on regulated centralized exchanges as an anti-money-laundering requirement. It's the main practical difference between using a CEX and a DEX, where no identity verification is required to trade.
KYC (Know Your Customer) in Practice
Picture someone signing up for an account on a major centralized exchange to buy their first bit of Bitcoin, only to discover that before any deposit or trade is allowed, the platform requires a government-issued ID photo, a selfie for facial-matching verification, and a recent utility bill confirming their home address. This KYC process exists because regulated exchanges operate under anti-money-laundering laws that require them to know who their customers actually are, similar to opening a bank account, and failing to comply can cost the exchange its operating licenses in the jurisdictions where it does business. Frustrated by the wait for manual review, the same person decides to try a decentralized exchange instead, connecting a self-custody wallet directly to a trading interface without submitting any personal documents at all, since DEXs operate as smart contracts rather than as regulated intermediaries holding custody of funds. This contrast, mandatory identity verification on centralized platforms versus none at all on decentralized ones, is one of the clearest practical differences newcomers encounter between the two models. It also explains why regulators and law enforcement pay much closer attention to DEXs and privacy-focused tools over time, since KYC on centralized exchanges is precisely the mechanism that lets authorities trace suspicious activity back to a real identity when investigating fraud or money laundering.
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