If you’ve been following the news and tendencies of the crypto world, you should certainly know about Know Your Customer (KYC) and Anti-Money Laundering (AML) processes. Designed to make blockchain-supported transactions more transparent and secure, these procedures have been frequently subject to criticism.
But what led to such pervasive criticism? And what is so controversial about KYC and AML? In a couple of minutes, you will understand why these procedures can easily lead the entire decentralized sector to death.
KYC & AML vs. Anonymity
Why has crypto become a subject of interest among the Internet community? The answer is obvious: it’s all about transparency and anonymity. Nevertheless, as the market matures and evolves, many old and bold crypto exchanges are now forced to introduce KYC & AML guidelines due to modern requirements of financial authorities. Although crypto exchanges which implement these guidelines ensure users a greater transparency, they actually neglect their anonymity.
That’s why it’s not surprising that the crypto community, to put it charitably, is not happy with such policies. KYC stipulations are the bugbear for many crypto enthusiasts, as they see their anonymity crumbling.
Who could be affected?
A recent wave of criticism of crypto exchange ShapeShift could be easily taken as an example. Established in 2013, ShapeShift has been lauded as a ‘Kingdom of Anonymity’, until they introduced new KYC guidelines which require users to register their real identities. Even more noteworthy, ShapeShift were initially against KYC procedure; that from the perspective of anonymity could be called supportive policies. But having followed the wave of KYC implementation, ShapeShift are now at risk of losing users’ loyalty and retention.
We are not only talking about crypto traders, who are likely to operate on exchanges quickly and anonymously, but also about ICO investors. As of now, the ICO sector is still in infancy, with plenty of fraudsters seeking to get your personal information. It means KYC could be used by ICO team for purposes other than intended.
Imagine: one has just found an ambitious and forward-looking project on the expanse of the Net. Said user contributes, but the ICO turns out to be a scam. Thankfully, it’s not fatal, if the participation doesn’t include KYC system. An investment will only entail the loss of funds. But if a user did go through KYC procedure, besides having been hit up for money, their personal information would be stolen as well.
And here’s the thing: an investor gives his vital information to an ICO team, which, in turn, didn’t go through any verifications. Moreover, there is still no regulation in the crypto sector yet, explaining why users shouldn’t give their personal details to unknown teams of ICOs and exchanges.
In the End
Naturally, cryptocurrency was designed to eliminate the need for financial intermediaries. But the practice shows that more and more traditional institutes are steadily adopting crypto, as well as offering their obsolete centralized approaches, including the KYC procedures. And that’s deplorable.
As a result, many members of the community already consider crypto as a ‘pseudo-anonymous’ means of payment. Key market players, including the aforementioned ShapeShift exchange, are only fuelling the fires by transforming the way crypto business is grown and expanded to the detriment of users’ needs and interests.
It now seems inevitable that over time, the KYC verification will not be optional, but mandatory and applied. The only thing, which could help avoid the ‘end of a decentralized era’, is young projects which could bring truly decentralized approaches to users’ anonymity and thus manage to eliminate the existing ‘KYC hype’ for good. There are already some which continue placing emphasis both on users’ confidentiality and the anonymity of their transactions. These types of projects would give hope to the community that decentralization is not dead. Otherwise, what are we here for?
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Featured Image: Tatiana Maramygina on Reshot.com