What KYC and AML actually mean
Know Your Customer, or KYC, refers to the process regulated businesses use to verify who a customer actually is before letting them transact, typically collecting government-issued ID, proof of address, and sometimes a selfie or video check. Anti-Money Laundering, or AML, is the broader set of practices built on top of that identity verification: monitoring transactions for suspicious patterns, filing reports with regulators when certain thresholds or red flags are triggered, and screening customers against sanctions and watchlists.
These aren't crypto-specific inventions. Banks, brokerages, and money transmitters have operated under KYC and AML obligations for decades. What's specific to crypto is that centralized exchanges and fiat on-ramps, the points where crypto meets the traditional banking system, are typically required to implement these same checks if they want to operate legally and keep their banking relationships.