Buying Bitcoin – KYV Requirements and Privacy Risks
Since Bitcoins act as a currency, they are subject to financial regulations. What this means is that rules have been set in place by most exchanges to stop money laundering. One of the ways these exchanges confirm who is trading Bitcoins is by instituting Know Your Customer (KYC) rules to confirm user identities.
One of the main aspects of the Blockchain is that all transactions can be traced back, all the way to the first transaction ever made on that chain. If someone learns a user’s identity, they can find out every single transaction that person has ever made. This has major implications for privacy.
Therefore, choosing the correct level of KYC for your needs is vitally important. Depending on how much privacy you require, you can choose the kinds of protections you want. There are three levels of privacy you can choose from. Make sure you use the correct level of identification for your purposes.
Level 1 – Zero KYC
Zero KYC means that the exchange, platform or seller of Bitcoins has no idea who you are. No documentation is necessary. Payment is usually done via cash transfer, using services like Western Union, Moneygram or Paysafecard. Buying bitcoins without KYC is usually done in peer-to-peer marketplaces, and it’s usually more expensive than other options. There is a risk of getting scammed too, whether you are buying or selling. These kinds of transactions are only done for small quantities of Bitcoins.
Level 2 – KYC Light
At this level, you are identified by your phone number or your payment channel. When paying for Bitcoin, you have to provide your bank account details, credit card details, Paypal details or the details of whichever system you are using. This means that the payment providers know your identity. This system is more secure than most, and it is less expensive than pure cash transactions. With KYC light you can buy limited amounts of Bitcoins in any exchange or Marketplace.
Level 3 – Full KYC
This method of verification is used when you want to trade on exchanges or invest large amounts of money. After verifying your identity with your phone number and bank account, you need to provide documents that prove your identity. This means submitting anything from a passport to a driver’s license to the exchange. Certain exchanges also require you to provide confirmation of your identity documents by a trusted third party like a notary or a bank. This degree of KYC is only used for larger trades. Therefore beginners will not need to use all of this.