Are non-KYC crypto exchanges as safe as their KYC-compliant peers?

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Many see the implementation of Know Your Customer (KYC) tools in crypto as a deterrent to the Bitcoin (BTC) standard, which has primarily promoted anonymous peer-to-peer transactions. However, regulators continue to promote KYC and Anti-Money Laundering (AML) implementation as a means to ensure investor safety and protection from financial fraud.

While most crypto exchanges have started implementing regulatory recommendations to stay at the forefront of mainstream adoption of crypto, investors still have the option of opting for crypto exchanges that promote greater anonymity by not implementing KYC procedures. give. But does choosing the latter as an investor mean compromising on security?

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a matter of trust

Anonymity goes both ways in most cases. Owners of crypto exchanges running non-KYC (or non-compliant) operations often choose to remain anonymous to avoid legal scrutiny. As a result, investors must have a high degree of confidence in the people responsible for running the exchange.

On the other hand, decentralized exchanges such as dYdX use trusted protocols to establish community-controlled trading platforms. This, in turn, instils confidence among the investors despite there being no KYC mandate on the platform.

Hence, monitoring the track record of the platform and the people running it becomes paramount when trading on a non-KYC platform.

Blockchain always remembers

While suites that support traditional finance portray crypto as a tool of money laundering, illegal cryptocurrency transactions have seen a steady year-on-year decline. Despite the ease of using cryptocurrencies without KYC verification, a Chainalysis study confirmed that only 0.15% of all crypto transactions in 2021 were linked to illegal activities.

Furthermore, immutable blockchain records allow authorities to trace back transaction owners, and prevent bad actors from using crypto – both KYC and non-KYC platforms – to fund their practices.

The sustainable nature of blockchain has allowed authorities around the world to hunt down fraudsters, fraudsters and launderers of crimes committed years ago.

not your keys, not your coins

One of the biggest concerns when dealing with crypto exchanges is the lack of control over assets. Cryptocurrencies stored on crypto exchanges mean handing over the private key to the exchange.

Using untested crypto exchanges that market without KYC requirements exposes investors to the risk of permanently losing their funds. While both types of exchanges – KYC compliant and non-compliant – require investors to hand over their crypto assets to third parties, KYC-compliant exchanges create greater trust among investors and regulators.

Answer to the question ‘Are non-KYC crypto exchanges secure?’ The above lies in understanding the nuances. Apart from receiving no support from the government, KYC or not, crypto investors remain equally vulnerable to risks related to external factors, such as owner intent and unclear business practices.

Additionally, investing with a non-KYC crypto exchange has limits on the trading price, available tokens and other services offered by the provider.