Anonymity became a barrier, standing in the way of cryptocurrency mass adoption by the traditional financial market. At the same time, abandoning confidentiality contradicts the core concept of digital assets. To satisfy interests of both cryptocurrency users and regulators, a trade-off was needed. The solution has already been created. Let’s dive deeper and learn how to remain anonymous in the crypto market without breaking a single law.
What is KYC and what does it have to do with cryptocurrencies?
The abbreviation KYC stands for Know Your Customer. This definition is often used in the context of the financial market. KYC refers to a range of processes aimed at ascertaining the identity of the person who plans to conduct a financial transaction.
Cryptocurrencies are a financial instrument that, by the covenant of the founder of Bitcoin Satoshi Nakamoto, should be anonymous. From regulators’ point of view, fully confidential transactions carry risks associated with money laundering, terrorist funding, and other illegal activities. That is why governing authorities need to pipe cryptocurrencies’ users through KYC procedures.
Crypto market participants are also interested in having convenience for all parties — users and regulators — relating norms for person identification. In fact, the government can not allow the spread of an anonymous financial instrument that they can not control due to its confidentiality.
Transacting with cryptocurrencies by following the KYC procedures can be seen as a two-way street: crypto community members can continue transactions with digital assets, while regulators will receive tools to control deals with such coins. That being said, users shall waive anonymity in that case.
What is wrong with KYC in the crypto industry and traditional market?
Crypto projects, including major exchanges, aspire to walk in a legal realm. For that, they need to be regulators’ “friends”. The best way to gain the trust of governing agencies when it comes to cryptocurrencies is to operate in accordance with KYC requirements.
The standard identity verification procedure in the crypto industry entails several steps, including the following:
- Providing a third party (the platform where the registration takes place) personal data, including surname, name, place of residency;
- Providing documents to confirm the user’s identity.
Also, platforms often ask users to take a selfie with a supporting document in hand.
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