The background of the rapid proliferation of no-KYC exchanges and the challenges faced by users

Rapid Growth of No-KYC Exchanges

In recent years, the number of users of no-KYC exchanges has been significantly increasing. Especially with the rise of decentralized exchanges (DEX), platforms that allow buying and selling cryptocurrencies without submitting identity verification documents are gaining attention. Uniswap holds a 60% market share, reaching 12 million monthly active users as of August 2024. Similarly, PancakeSwap recorded 1.9 million unique on-site users in August 2024, indicating high interest in no-KYC exchanges.

Main Factors Attracting Users

Importance of Privacy Protection
The primary reason many users choose no-KYC exchanges is the non-disclosure of personal information. In a time when surveillance and data leaks are frequently reported, anonymous trading environments are a major concern for many users.

Ease of Access
Traditional exchanges require submission of identification documents and review periods, but no-KYC platforms do not require these procedures. For users in countries where cryptocurrency trading is regulated or in regions without access to banking services, no-KYC exchanges can be the only option.

Quick Entry and Flexibility
Users can start trading immediately without waiting for identity verification, and can create multiple accounts and transfer funds without limits. This is a significant advantage for traders who do not want to lose time.

Risks That Cannot Be Overlooked

Security Vulnerabilities
High anonymity can facilitate fraud. When smart contract code flaws or scams occur, there is no central authority to provide support, leaving users vulnerable.

Rapid Regulatory Risks
Regulatory authorities worldwide are increasing oversight of no-KYC exchanges. Users may be tracked for suspected illegal fundraising or tax evasion, leading to more legal challenges.

Functional Limitations
Platforms like Uniswap do not support withdrawals in fiat currency. Also, for cryptocurrencies with low liquidity, trading pair options are often limited.

Lack of Insurance Protection
Traditional banks offer deposit insurance systems (e.g., the UK’s FSCS up to £85,000, the US’s FDIC up to $250,000), but no-KYC exchanges lack such protections. If funds are lost due to hacking or scams, users bear the full loss.

The Contradiction of Decentralization

Decentralized platforms bring freedom and transparency but create a situation without responsible parties. Without a central administrator, there is no support desk for dispute resolution.

Reality of Being a Hotbed for Illegal Activities

Many cases have been reported where no-KYC exchanges are exploited for money laundering and illegal fund transfers.

Case of Darknet Market Hydra
Hydra, active mainly in Russia, combined no-KYC decentralized exchanges with Bitcoin mixers to launder several million dollars worth of cryptocurrencies. Since no identity verification was required, criminals could convert illegal Bitcoin into legitimate assets without revealing their identities.

Large-Scale Laundering Using Tornado Cash
In the hacking of Axie Infinity (over $600 million stolen) by North Korean hackers, Ethereum was transferred through Tornado Cash, a mixer service, to no-KYC exchanges. Funds were withdrawn to different addresses via smart contracts, completely concealing their origin.

In 2023, the US Internet Crime Complaint Center (IC3) reported over 60,000 complaints related to crypto scams, with estimated losses reaching $5.6 billion.

Practical Countermeasures for Self-Protection

When using no-KYC exchanges, the following security measures are essential.

Strong Password Management
Create long, complex passwords and manage them centrally with a password manager.

Enable Two-Factor Authentication (2FA)
Implementing 2FA significantly enhances account access security.

Use VPNs to Ensure Anonymity
VPNs hide location information and encrypt internet connections, adding layers of privacy protection.

Proper Fund Diversification Management
It is recommended to keep only necessary funds in connected wallets for trading, and transfer surplus funds to hardware wallets.

Beware of Phishing Scams
Double-check URLs, verify smart contract addresses, and avoid suspicious emails or links to prevent scams.

Using no-KYC exchanges offers freedom and convenience but also involves many risks. Implementing these protective measures can significantly mitigate those risks.