It’s easy to question the necessity for strict know-your-customer (KYC) and anti-money-laundering (AML) controls, as Edan Yago did during a recent CoinDesk op-ed.
Who likes the rising complexity and costs of compliance? Who gets excited about relinquishing control of private data to line up a wallet, including access basic financial services?
The resulting data duplication across multiple centralized, siloed databases raises the danger profile for organizations large and little , stifling basic operations and thrilling and delighting nobody .
KYC/AML is a simple target for critics like Yago, who also argue that these practices effectively amount to global surveillance, and thus substitute direct contradiction to 2 of the foremost important aspects of cryptocurrency – privacy and disintermediation. Not only can KYC/AML infringe on a user’s right to privacy, we are told, but it can see sweeping “Big Brother” surveillance practices instituted. Over and out.
Should we do away with regulation then? Down with KYC/AML? Not so fast.
We’ve seen the choice to no regulation firsthand, and what meaning for blockchain companies. Silk Road aftershocks bogged down innovation and effectively de-legitimized the space for years, because blockchain came to be related to criminal activity. Regulatory uncertainty meant that for years, early adopters took enormous personal and financial risks to pave the roads we get to travel on today.
Even more importantly, if none folks show up to take a seat at the table when it matters most – when the longer term of the ecosystem is at stake, because, no doubt, more regulations are coming – we'll have only ourselves responsible if we don’t just like the results.
A new privacy standard
It’s important to notice that although KYC/AML processes and regulations can hinder privacy, that doesn’t mean that they need to .
There is no reason that approaches more according to the elemental principles of cryptocurrencies can’t be devised to satisfy KYC requirements without placing an excessive amount of data within the hands of a central provider (or a couple of providers) who could abuse it, or open it up to abuse through a catastrophic breach.
In fact, KYC practices are fast becoming the gold standard for regulatory bodies looking to thwart concealment within the cryptocurrency ecosystem.
It’s incumbent upon the cryptocurrency ecosystem to develop solutions that perform these practices during a manner that doesn’t kill the technology’s promise.
If our common goal is to advance mass adoption, blockchain and crypto companies should be prepared to figure closely with the regulators and are available up with new ways to unravel big thorny problems. Simply put, we must build better technology.
Blockchain and powerful cryptography enable multi-stakeholder use cases that simply weren’t technologically possible even a couple of years ago, and KYC/AML presents new exciting opportunities to revisit and uphold the first intent to curb bad actors and improve the protocol.
At present, the KYC/AML infrastructure mirrors guidelines implemented by centralized financial enterprises round the world. even as traditional financial institutions require due diligence on prospective customers, cryptocurrency companies also believe KYC/AML to gather personally identifiable information on individuals before allowing them to make new crypto wallets, do peer-to-peer lending, remit money across borders, or buy or sell crypto on an exchange. within the event a criminal offense is committed, this information are often wont to accurately pinpoint an offender and take appropriate action where necessary.
However, biometric identification shouldn’t accompany the danger of knowledge compromise and extreme costs.
Through strong cryptography and thru introducing decentralization into the present system and process, it’s possible to make protocol-level crypto rails to dramatically improve the handling of KYC/AML from the privacy and security perspective — all while reducing the value of verification and clearing the barriers to mass adoption of cryptocurrencies and blockchain.
Once the prices are dramatically reduced, the upside of getting strong and efficient KYC/AML regulations in situ means more businesses will innovate and prosper. Progressive jurisdictions like Bermuda, Mauritius and Australia are already listening and turning to the blockchain and crypto space for collaboration on legislation.
This levels the playing field for those billions of individuals without “legal ID” during a traditional sense, because new methods emerge to assist assess people’s ability to repay loans, prove their credibility, transact and participate within the global economy. Traditional banking becomes a viable option then, as do the alternatives because there are new ways to transact and establish trust that don’t involve relinquishing full control of private data. Finally, if the prices of KYC/AML compliance keep that global economic participation cornered , once that barrier is gone, imagine the liberty for innovators it might create.
This is why my team and other notable organizations are working to showcase the importance of KYC/AML and other important initiatives within the global cryptocurrency community — to prove, through tangible use cases, that it’s not preventing crypto innovation, it’s pioneering it.