KYC (Know Your Customer)
Identity verification procedures required by financial regulations where platforms collect and verify users' personal information such as government-issued ID, address, and source of funds. Most centralized crypto exchanges require KYC, while DeFi protocols generally do not. KYC is part of broader Anti-Money Laundering (AML) compliance.
“To buy Bitcoin on Coinbase, you must complete KYC by uploading your driver's license and verifying your identity. On Uniswap (a DEX), no KYC is required since you trade directly from your wallet.”
CEX (Centralized Exchange)
A cryptocurrency exchange operated by a centralized company that acts as an intermediary between buyers and sellers. CEXs hold custody of user funds, maintain off-chain order books, and typically require identity verification (KYC). They offer high liquidity and ease of use but introduce counterparty risk.
DEX (Decentralized Exchange)
A cryptocurrency exchange that operates without a central authority, using smart contracts to enable peer-to-peer trading directly from users' wallets. DEXs never take custody of user funds. Most DEXs use automated market maker (AMM) models with liquidity pools, though some use on-chain order books.
Compliance
The adherence to regulatory requirements governing cryptocurrency businesses, including Anti-Money Laundering (AML) rules, Know Your Customer (KYC) procedures, securities laws, tax reporting obligations, and sanctions screening. Regulatory frameworks vary significantly by jurisdiction and are rapidly evolving. DeFi's permissionless nature creates unique compliance challenges compared to traditional finance.
Decentralization
The distribution of control, authority, and data processing across a network of participants rather than concentrating it in a single entity. In blockchain, decentralization means no single party controls the network, making it censorship-resistant and reducing single points of failure.