KYC/AML and Fees

Before you can use an exchange as a platform to buy bitcoin or trade cryptocurrencies, there are certain requirements and guidelines that you will need to adhere to.

KYC/AML

All properly regulated exchanges adhere to a set of regulations known as Know Your Customer (KYC) and Anti-Money Laundering (AML).

In compliance with these regulations, the exchanges are required by law for registered users to provide proof of identity and proof of address during sign-up of a new account.

Proof of identity may be provided by submitting a soft copy (pdf, jpg, png etc.) of the government-issued ID document, driver’s license, or passport with sufficient validity period.

Proof of address may be provided by submitting a soft copy (pdf, jpg, png etc.) of a utility bill or bank statement with the name and address of the person stated at the top. Documents should be recent, usually within the last 3 months.

Spread, Trading and Withdrawal Fees

A cryptocurrency exchange operates as a business which is not unlike in nature as a bureau de change or money changer.

A fiat-to-crypto exchange derives its profit from the buy and sell spread, i.e. the difference between the buy and sell prices of cryptocurrencies with respect to fiat currencies.

A crypto-to-crypto exchange derives its profit from trading fees. A small percentage in trading fee is incurred when converting from one cryptocurrency to another.

An exchange may also derive its profit from withdrawal fees, although a significant portion of this is paid to the miners, which we have seen in What is Bitcoin Mining.

Safe Guidelines When Using Exchanges

While it is generally safe to buy or trade on exchanges, one must keep in mind the following safe guidelines when using a cryptocurrency exchange:

  1. Use a safe email address and a strong secure password for your login credentials
    Safe email addresses are those which have a good reputation (have never been hacked) and are accessible only by you. Avoid using work email addresses as those are often managed and accessible by IT admin personnel.
  2. Activate 2-Factor Authentication (2FA) for login
    2FA may be via email, SMS, or random number generation using Google Authenticator or Authy. See Two-Factor Authentication.
  3. Never leave your bitcoin in an exchange wallet for any prolonged duration. Withdraw immediately to your personal wallet after purchase, unless you are planning to leave a small amount in the exchange for trading purposes.
    Although the exchange wallet may have been set up in your name, bear in mind that the wallet doesn’t actually belong to you. The wallet and its private keys are controlled by the exchange. This includes all the BTC and other altcoins in those wallets. Remember: “not your keys, not your coins”! Although security levels are much better these days, if a cryptocurrency exchange is hacked, bitcoin may be stolen and there is likely no recourse to recover your losses. Do not take this risk. Withdraw it to your personal wallet or even better, to your hardware wallet.

To buy bitcoin at your location, visit the Exchange Directory by Country at startbitcoin.info.

Ledger Nano X - The secure hardware wallet
Ledger Nano X - The secure hardware wallet