What is KYC in Crypto? (Investor’s Guide 2025)

Starting in 2026, all cryptocurrency exchanges in the United States will be required to comply with KYC requirements. Let’s break down what KYC is and how it impacts you. 

What is KYC (Know Your Customer)?

Know Your Customer (KYC) is a set of standards that apply to traditional finance companies and crypto exchanges. KYC allows exchanges to verify customer identity, understand the nature of their financial activities, and assess money laundering risk. 

Governments mandate KYC to prevent tax evasion, financial terrorism, and other illicit activities. Exchanges typically provide KYC to the federal government and other agencies upon request. 

In 2023, Coinbase settled a lawsuit with New York state for $100 million due to its "immature and inadequate” KYC program. Due to actions like these, exchanges have implemented stricter KYC procedures.

Is KYC mandatory for all crypto exchanges? 

Starting in 2026, the United States government will require all crypto exchanges —centralized and decentralized— and certain crypto wallet providers to issue Form 1099-DA to report capital gains and losses to users and the IRS. 

To issue these tax forms, cryptocurrency platforms will need to be able to identify their customers. 

At this time, it’s unknown how decentralized exchanges and cryptocurrency wallets will  comply with these requirements. Most of these platforms don’t have the capability to collect KYC information from customers or issue tax forms. 

What information do I need to provide for KYC? 

When you create an account on a cryptocurrency exchange like Coinbase or Kraken, you’ll be required to provide the following information: 

• Full name
• Date of birth
• Address
• Photo of a government-issued ID (passport, driver’s license, etc.)
• Biometric verification (a photo/video of you, fingerprint scan) is becoming increasingly common.

Verification times range from 10 minutes to 48 hours. It’s likely that artificial intelligence will help speed verification times in the near future. 

What is KYC used for? 

Let’s walk through some of the reasons why crypto exchanges collect KYC from customers: 

• Preventing fraud, money laundering, and tax evasion.
• Ensuring compliance with financial regulations.
• Verify the customer’s identity against official databases of Politically Exposed Persons (PEPs) and sanctioned individuals 
• Crypto exchanges use KYC to issue tax forms like Form 1099 to users and the IRS.

Should I try to avoid KYC? 

It’s generally recommended that you don’t avoid KYC. 

The list of no-KYC exchanges is shrinking rapidly in response to government actions, which means that avoiding KYC is usually more trouble than it’s worth. 

Is KYC good or bad? 

What’s good about KYC regulations? 

It’s important to remember that avoiding KYC can be incredibly burdensome — especially as new regulations come into effect. 

In addition, complying with KYC regulations comes with positives, such as: 

• Access to major exchanges 
• Exchanges with KYC typically have enhanced security and better relationships with banks and other financial institutions 
• KYC is usually required to cash out crypto to fiat currency 
• Reduced risk of scams and fraud 

What’s bad about KYC regulations? 

Privacy concerns: Some crypto investors seek to avoid KYC out of privacy concerns. If an exchange suffers a data breach, your personal information could be exposed to hackers. 

Government overreach: Some crypto enthusiasts are wary of KYC due to the risk of government overreach and potential censorship. For example, Canadian truckers who protested COVID-19 vaccine mandates had their financial accounts frozen.

Can I legally buy crypto with no KYC? 

There are some options to legally buy crypto without KYC. Here are some options: 

• Bitcoin ATMs 
• Peer-to-peer (P2P) platforms like Bisq and RoboSats are not subject to KYC, as they simply facilitate transactions between users 
• Decentralized exchanges (as noted earlier, subject to change in 2026) 

It’s important to note that no-KYC exchanges do come with risks. Because these exchanges do not verify identity and are typically not subject to government regulations, there may be a greater risk of scams and fraud. 

Is crypto KYC safe? 

Most major exchanges use encryption to protect your personal information. However, it’s important to remember that there is always a risk that your info could be leaked in a data breach. 

In 2024, Gemini was hacked. In a statement, the exchange said that customers’ personal information including their name and bank account number may have been compromised. However, the exchange said that other sensitive information — like date of birth and Social Security numbers — was kept safe. 

Conclusion

Crypto investors should prepare for a world where KYC is the norm. While privacy and government overreach are valid concerns, tightening regulations make it harder than ever to find trusted no-KYC exchanges.