KYC (Know Your Customer) is a regulatory process that requires financial institutions to verify the identity of their customers before providing services. In cryptocurrency exchanges, KYC involves collecting and verifying personal information such as government-issued IDs, proof of address, and sometimes additional documentation.
KYC is important because:

• Legal Compliance: Most jurisdictions require cryptocurrency exchanges to implement KYC to operate legally
• Risk Management: Helps prevent money laundering, terrorist financing, and fraud
• User Protection: Protects legitimate users from association with criminal activities
• Regulatory Approval: Enables exchanges to work with banks and traditional financial institutions
• Market Integrity: Maintains trust in the cryptocurrency ecosystem
  Example: Coinbase requires users to upload a driver's license photo and verify their address before allowing cryptocurrency purchases above certain limits.

While related, KYC and AML serve different purposes:
KYC (Know Your Customer):

• Purpose: Identity verification and customer due diligence
• Process: Collecting and verifying customer identity documents
• Timing: Performed during customer onboarding
• Focus: "Who is this person?"
  AML (Anti-Money Laundering):
• Purpose: Detecting and preventing money laundering activities
• Process: Ongoing transaction monitoring and suspicious activity reporting
• Timing: Continuous monitoring throughout the customer relationship
• Focus: "Are these transactions legitimate?"
  In blockchain context, KYC establishes who owns a wallet address, while AML monitors blockchain transactions for suspicious patterns like rapid transfers between multiple wallets or transactions involving known criminal addresses.