(Know-Your-Customer)KYC and (Peer-to-Peer) P2P Trading Analogy

To transact in cryptocurrency you need a public and private key. You do not need to share your name or personal details except when trading peer-to-peer. However, most Cryptocurrency trading platforms introduce a peer -to- peer form of transaction to enable users use their own currency to buy cryptocurrency.

For example, Jane lives in Kenya. Jane wants to buy Bitcoin on Binance using Kenyan Currency (KES), however, Binance does not support direct purchase of crypto using KES. Therefore, Jane has to go to the bank and convert KES to USD before buying Bitcoin.

This will require many processes, and Jane who has never exchanged currency before will give up on buying Bitcoin. This is because the exchange processes take time, documents and processes, yet Jane does not want to spend a lot of time in the bank for something simple. Therefore, Binance will lose many customers like Jane. No one will buy Bitcoin or use Binance.

To bridge this gap, Binance introduces a Peer-to-peer (P2P) section where Jane can trade with John who also lives in Kenya. Jane sends John a certain amount of KES using M-pesa (Kenya's Payment System) and John sends Jane USD. Jane is happy and she can now buy Bitcoin and trade.

The question is, 'Where does John send Jane the USD? Through the Bank?' But Banks do not allow direct currency exchange, you have to involve them. So Jane has to go to the bank again to verify USD sent by John before depositing it to Binance.

It is important to note that the intermediary here is not a Bank but Binance. Binance offers Jane a solution to get USD directly from John and Buy Bitcoin on the same platform, and tax free; something which would have caused taxation and monitoring from the Kenyan government.

This is the key reason why Cryptocurrency exchanges break the anonymity rule, to allow P2P transactions, which cannot occur without KYC verification.

Therefore, KYC is mandatory to prevent fraud. This is especially in countries that the trading platform, for example, Binance has not listed the country's currency for direct crypto purchase.