Why AML is Needed When Swapping Crypto? - Coindoo
Why AML is needed when swapping crypto?

Why AML is Needed When Swapping Crypto?

Editorial Team Avatar
Nov 14, 2023
4 min reading time

Cryptocurrencies were initially considered a completely anonymous and secure means of exchange. But as the value of digital assets increased and large investors attracted, the situation changed dramatically.

Currently, more and more centralized cryptocurrency exchanges are introducing mandatory customer verification procedures. Opportunities for anonymously exchanging large amounts of BTC to ETH are becoming increasingly scarce.

Why is the KYC procedure necessary?

The KYC (Know Your Customer) procedure obliges financial organizations and institutions to identify and verify the identity of each customer before they can carry out financial transactions. This is not always a pleasant, but necessary measure, since anonymity and lack of control are fraught with many temptations and impunity.

In fact, criminals can outwardly pass for law-abiding citizens, and it is important for companies to avoid even the theoretical possibility of collaborating with shady characters. KYC is one of the measures to protect against such risks.

Since cryptocurrency exchanges operate in a legal environment and care about their reputation, they adopt general rules. Each exchange independently determines the stages of verification and the amount of information requested from the user. Typically, the required data for KYC are:

  • Passport details.
  • Identification.
  • Residence address.
  • Phone number.
  • E-mail address.

In addition, the system may require confirmation of your phone number or email. Some platforms also ask for photos of documents and utility bills.

Typically, the larger the amount you plan to deposit on the exchange, the more information about you will be required. For most clients, it is enough to go through the basic or maximum second stage of verification.

Many users believe that verification violates one of the key principles of the cryptocurrency world – anonymity. But this is a measure necessary to ensure the security of cooperation with the crypto platform.

Anti-Money Laundering

The KYC procedure is only part of a wider range of measures aimed at combating money laundering. The full name of this set of measures is even more impressive: “Combating money laundering, the financing of terrorism and the financing of weapons of mass destruction.”

You may ask, how do crypto exchanges relate to this? After all, information about transaction amounts and addresses of participants is publicly available on the blockchain? It is true that the movement of each coin can be tracked, but the names of the previous owners and the purpose of the transactions often remain hidden.

In theory, any transaction could be linked to illegal activity, such as hacking, extortion, or even more serious crimes. By buying cryptocurrency on an unregulated platform, an investor risks acquiring so-called “dirty” coins, for example, stolen or obtained as a result of drug sales. Do you really want coins that have been in the hands of… HAMAS, for example? And potential problems with the next convert BTC to EUR operation?

Anti-Money Laundering (AML) policies are aimed at preventing the movement of illegally obtained cryptocurrencies. Around KYC, this set of measures includes:

  • Verification of bank cards.
  • Monitoring of financial transactions.
  • Financial risk assessment.
  • Crypto compliance and other procedures.

It is important to note that reputable crypto exchanges also adhere to AML/KYC due to the need to comply with these standards.

What does KYC give to the client?

If you are asked to disclose personal information and prove that you are law-abiding, you have the right to know what you are being offered in exchange.


  • All your funds, while on the crypto exchange, are within the legal framework, which guarantees the safety of your investments.
  • KYC procedures can reduce fees and increase the accessibility of various financial transactions.
  • Guaranteed compensation for losses in case of hacking or technical failures.
  • KYC procedures help prevent unauthorized use of your funds on bank cards.


  • Additional time spent on data verification.
  • Risk of personal data leakage during hacking.
  • Some users may feel uncomfortable providing personal information for KYC as it conflicts with the concept of anonymity in the cryptocurrency world.

We live in a world where one person’s law-abiding nature cannot always guarantee his protection from the illegal actions of others. It may not be obvious to everyone, but AML/KYC measures undoubtedly contribute to increased financial security and are worthwhile despite some temporary inconveniences.

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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