Introduction

Over the past few months, the cryptocurrency industry has faced a regulatory storm. For example, U.S. prosecutors brought criminal charges against KuCoin and its two founders, accusing the global cryptocurrency exchange of violating U.S. anti-money laundering laws. If convicted, they could face up to 10 years in prison.

To comply with increasingly stringent anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, many top cryptocurrency exchanges such as Binance, Coinbase, OKX, KuCoin and Bitget that previously allowed users to trade without identity verification have had to adopt mandatory Know Your Customer (KYC) procedures.

This shift reflects the growing regulatory demands on cryptocurrency exchanges from authorities. They require these exchanges to take necessary measures to ensure the legality and transparency of transactions, preventing them from being exploited for illegal activities. However, the implementation of KYC processes by cryptocurrency exchanges may make some users feel lacking privacy. This article will mainly discuss the opportunities and challenges for cryptocurrency exchanges to implement KYC processes and how zkMe's zkKYC help these exchanges address these challenges.

What is KYC in crypto?

KYC is a process used by crypto trading platforms to confirm the identity of users. Imagine that just like you need to show ID and proof of address to open a bank account, cryptocurrency exchanges require you to provide this information. This usually involves uploading your passport, driver's license, or other official identification, and sometimes a selfie may be required to make sure it is you registering in person. This is done to prevent money laundering and fraud and to ensure that transactions are secure.

While KYC helps integrate the crypto industry with traditional finance and attracts institutional investment by ensuring regulatory compliance, it conversely raises privacy concerns among those who value anonymity and decentralization originally associated with cryptocurrencies.

Top 5 Crypto Exchanges implemented KYC in 2024

Binance

As the largest cryptocurrency exchange in the world, Binance has fully implemented mandatory KYC procedures to comply with regulatory requirements in different jurisdictions and enhance anti-money laundering (AML) and counter-terrorist financing (CFT) compliance.

The KYC process at Binance is divided into several tiers for most countries, and the more advanced the account level, the more personal information and verification steps are required. The following are requirements of Binance KYC.

1. Tier 1 and 2 (Verified, Verified Plus)

• Providing valid government issued identification (passport/ID card, etc.).
• Full in personal information such as full name, birth of date and address.
• Proof of residential address.
• Verified by face recognition.

2. Tier 3 (Available upon request)

• Declare source of wealth.
• Declare Politically Exposed Person (PEP).
• Declare source of fund.

Coinbase

Coinbase is a well-known cryptocurrency exchange based in the the United States. Founded in 2012, Coinbase is popular for user-friendly interfaces, relatively high security standards, and leadership in the U.S. Compliance.

All Coinbase customers are required to verify their identity during enrollment as well as existing customers as part of Coinbase's KYC process, which is part of its compliance measures to comply with Anti-Money Laundering (AML) regulations and perform Customer Due Diligence (CDD).

Coinbase's KYC process typically includes the following steps:

1. Account Registration: Provide email address, password, and agree to Coinbase's User Agreement and Privacy Policy.
2. Identification: Fill in personal information (full name and birth of date, etc.) upload a government-issued identification document.
3. Face recognition: Take a selfie or record a short selfie video.
4. Address proof: Upload proof of residency, such as a utility bill and bank statement.
5. Enhanced Due Diligence (if applicable): Coinbase may request more information for large transactions or for users who are considered high risk.

OKX

OKX is one of the popular cryptocurrency exchanges currently used by over 20 million users to trade cryptocurrencies. OKX requires users to fulfill the requirements of the KYC process of OKX when using their personal accounts to ensure easy security and prevent fraud and other illegal activities. Transactions and top-ups/withdrawals can be made after completing identity verification.

OKX's KYC verification requirements:

1. Basic info: Provide basic information about yourself, such as full legal name, date of birth, country of residency, etc..
2. ID documents: Upload valid government-issued IDs, passports, driving licenses, etc.
3. Selfies: Take selfies (No mask, glasses and hat).
4. Proof of Address (if applicable): Upload a document with your current residential address and legal name.

KuCoin

KuCoin is a global cryptocurrency exchange that covers more than 200 countries and has over 30 million users. It is favored by users for its user-friendly interface, wide selection of cryptocurrencies, and relatively low transaction fees. KuCoin introduced a mandatory KYC program on August 31, 2023 for all users.

KuCoin's KYC verification requirements:

1. Personal information: Select your country/region and fill in the personal information.
2. ID photos: Use the camera to take and upload a photo of your ID.
3. Face verification and review: Follow the system prompts to complete the facial verification process.

Bitget

Founded in 2018, Bitget is one of the world's leading cryptocurrency exchange, with the provision of copy trading services as one of its main features. The exchange serves over 20 million users in more than 100 countries and regions. Bitget requires all users that need to finish KYC process before September 1, 2023, otherwise the users will be restricted to access Bitget service.
Bitget KYC process is as follows:

1. Fill out the country that issues your ID and your ID type.
2. Upload the picture of your ID document.
3. Authorized camera access to the real-time selfie.

Why do some users want to avoid KYC on web3?

Privacy concerns

The decentralized nature of blockchain and the ethos of Web 3 emphasize user autonomy and the minimization of reliance on centralized authorities. KYC procedures are often seen as antithetical to these principles because they involve centralized vetting and control. In addition, KYC processes often rely on trusted third parties or centralized authorities to verify user identities.

The complexity and repeatability of the validation process

Web 3 lacks unified KYC standards and protocols, and the verification process of each platform is different, bringing high learning and operation costs to users. Therefore, users need to repeat the complex KYC process in each new Web 3 application, including uploading files, recording videos, face recognition, etc., which is not only time-consuming and labor-intensive, but also a very poor experience.

The value of decentralized Web3

The decentralized nature of blockchain and the ethos of Web 3 emphasize user autonomy and the minimization of reliance on centralized authorities. KYC procedures are often seen as antithetical to these principles because they involve centralized vetting and control. In addition, KYC processes often rely on trusted third parties or centralized authorities to verify user identities.

How can zkMe's zkKYC help?

As mentioned above, the core spirits of web3 are decentralization and data autonomy, which can make the implementation of traditional KYC processes challenging, as they often require the collection and storage of personal data, which goes against the core principles of web3. However, zkMe offers ZKPs-based KYC solutions to these challenges, which provide a way to verify user's identities while still maintaining data autonomy and decentralization.

zkMe is launching the first fully private-by-design web3 native credential infrastructure (as B2B SaaS) specifically designed to facilitate the onboarding of both institutional and retail investors onto permissioned DeFi products with the lowest entry hurdles possible.

With zkMe, users can disclose to authorized parties selectively, without compromising their privacy, and enjoy greater control over their digital identities. All data processing of personal data is processed fully automatically, directly on your end device or in a decentralized oracle network. At NO point in the due diligence process does ANY party (no regulator, no company, no shady 3rd party "data processor", not even zkMe) have access to ANY personally identifying information. NO personal data is shared, NO personal data is stored on centralized servers.

Available zkKYC Credentails of zkMe

Conclusion

There are more and more crypto exchanges adopting KYC to address regulatory compliance, and enhancing AML and CFT efforts. However, it challenges the privacy and decentralization ethos of Web3. Users concerned about privacy and the cumbersome nature of repeated KYC verifications across platforms seek alternatives. zkMe's zkKYC emerges as a privacy-preserving solution, utilizing zero-knowledge proofs to confirm identities without compromising sensitive data. It bridges the gap between regulatory requirements and the core principles of Web3, allowing users to maintain control over their personal information while participating in the digital economy.

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