If you’re curious about these things, it’s fair to ask of course: Why does the exchange really need your data, what do they do with it, and who actually gets to see it? These are important questions to ask for anyone using a crypto exchange today.
if not for the fact that the issue of data privacy is a subject that has become of serious concern to everyone involved in the crypto space due to how unsafe the digital space has degenerated to, it would not have been an issue that we are expected to submit our information for check while using an exchange since the aim is mainly for the good of all the users of the exchange.
of cause, as long as you are dealing with an exchange, the issue of decentralization is no longer going to be as completely strong as it ought to be. there is a third party involve and for that reason, you don't completely have an 100% control over your funds, data and privacy. it is the reason why you can keep your private keys safe and the exchange gets hacked and your funds get stolen. as long as you are dealing with an exchange, the risk involved is much and hence, KYC is just one of the means through which you are exposed to a third party.