- >Opinion: KYC is a Ultimately a Good Thing
Opinion: KYC is a Ultimately a Good Thing
KYC, or Know your Client is a practice wherein a company is required by law to obtain certain pieces of information about their clients. KYC is part of a broader and more global initiative to combat fraud, identity theft, and money laundering. Therefore, it is typically a money services business that is required to conduct KYC practices. If you decide to buy cryptocurrency online, then chances are, you will need to provide some details about your identity. This is usually in the form of a government issued license, or passport. There is a strong undertone of privacy and anonymity throughout the world of cryptocurrency. Therefore there are strong arguments against KYC being required for users. While these arguments have their merits, I believe that KYC is ultimately a good thing.
Keegan Francis | Oct 13, 2020
KYC Limits Criminal Organizations
Let’s face it, no one wants criminals using cryptocurrency. Criminals using cryptocurrency gives a really bad name to the technology. Then educators need to follow behind them and explain that cryptocurrency is just a tool. Cryptocurrency is neither good nor bad, it’s how people choose to use it. The same can be said for cash. To this day, the majority of financial crime is perpetrated in digital banking systems, and with cash. What KYC does is make sure exchanges and other money service businesses do not allow criminals to use their services. By cross checking customers names and other details, companies can learn about their history. Certain past activities may violate companies terms of service, and stop you from using their services. Ultimately, regular people do not want organized crime to be able to further their agenda, with or without cryptocurrency.
KYC Helps Prevent Attacks
KYC can help prevent certain digital attacks. This alone is a very good reason why the community at large should be on board with KYC. It is in everyone’s best interest for Binance to continue their line of business. It is really not great if hackers are able to exploit vulnerabilities in businesses systems. When this happens, a small group or individual is the benefactor of the losses of others. This spoils the name of cryptocurrency, and sometimes renders the service unusable by others.
A sybil attack is when hackers manipulate a network by creating many accounts. They are then able to control these many accounts with a network of bots. Once the many accounts can be harnessed, a number of tactics become possible. Anything from price manipulation to generating hype around a particular project or coin. One massive problem in the world of cryptocurrency is figuring out how to secure a person’s identity in a decentralized way.
Let’s take Steemit for example. Steemit is a decentralized social media platform where you get paid for the popularity of your posts. Imagine if facebook gave you a penny for every like you got on your posts. That’s sort of like how Steemit works. A sybil attack is particularly dangerous on this network. If I controlled 1 million accounts, I can tell them all to like my posts, which will generate me rewards. One of the ways to get around sybil attacks, is to charge money for membership. This essentially makes it expensive, and therefore not worth the effort to conduct a sybil attack.
When a company collects data on their users, it’s for a variety of reasons. One of the purposes is to be informed in the event of a hack. If the attack came from within the platform, then a little KYC goes a long way. Data is a lot like a trail of breadcrumbs. As long as there is a starting point, you can follow the data trail to find the culprit. KYC is that starting point. If an account is found to be responsible for a hack, then the company knows where to look first.
Most companies collect a wide variety of information from their users. Yes this includes names, email addresses, and phone numbers, but also IP addresses. This information is very useful to law enforcement. In the best case scenario after a hack, the information is used to find the culprits of the hack. Ideally, the stolen material or funds are returned back to the end users.
When KYC Goes Wrong
Just like everything else in this world, KYC can go too far. Collecting massive amounts of information about general users is valuable for reasons beyond the intended primary use. KYC goes too far when the secondary or tertiary use of the data is outside what the user thinks is being done with the data. Companies are required to disclose exactly what the data is being used for in their terms and conditions, and data privacy agreements. An example of secondary usage for data is using it to sell you ever more relevant products. Data can be leveraged to learn your interests and behaviours. This data has proven useful in selling you things that you might not necessarily want, or have the ability to pay for. The ethics on this practice are still being debated.
The Industry is Largely on Board
Most companies want to comply with the regulations set forth by the government as best they can. Governments can often overextend regulation, and craft requirements very rigidly, making it impossible for anyone to comply. KYC used to be a really tough task to complete. User drivers licenses needed to be validated individually by humans. This is a nightmare for businesses because humans are expensive to hire. AI has progressed to the point where documents can be automatically validated in a matter of minutes by a robot.
All the major exchanges have weighed in on the debate, and implemented their own KYC paths. Some have even lifted KYC requirements for users not dealing with government currency. Binance for example allows users to trade cryptocurrency with no KYC. This means you can deposit, withdraw, and trade cryptocurrency within smaller daily limits. KYC, and regulations are welcome to most in the world of cryptocurrency. They bring legitimacy and security to the space when they are implemented properly. At the end of the day more good comes from KYC than harm. KYC is ultimately a good thing.