How Does Know Your Customer (KYC) Limit The Mass Adoption Of Cryptocurrencies?

Know Your Customer (KYC) – According to Chainalysis, in 2021 there will be an 880 % increase in the adoption of digital currencies worldwide.

Millions of customers are undoubtedly eager to comprehend and invest in this enormous sector. However, the widespread attention is drawing several regulatory interventions that mandate the implementation of KYC procedures. These rules end up having an impact on the digital asset economy when there is no clear framework. The article that follows aims to provide some insight into how KYC might prevent widespread adoption of cryptocurrencies.

What is Know Your Customer (KYC)?

The term “Know Your Customer” or “KYC” refers to procedures that examine a user’s identity. Through this process, financial institutions and digital asset platforms can check a customer’s history before providing their services. In most cases, users must provide personal information in order to use a crypto platform’s services. KYC acts as a preventative measure that stops bad actors from conducting any type of financial crime. These crimes could involve things like money laundering, unlawful trafficking, financing terrorism, and many others.

How Know Your Customer (KYC) prevents mass adoption of cryptocurrencies?

KYC avoids cryptographic rivacy

Personal data is not required while transacting in the virtual asset arena. Users will essentially simply need a digital wallet and an address in order to complete a deal. Then, without disclosing the parties involved in the transaction, transaction information are kept in a blockchain network. As a result, the idea provides cryptocurrencies with an anonymous design that upholds the fundamentals of crypto privacy. By asking for personal information in order to provide their services, platforms that use KYC circumvent this privacy, which hinders widespread adoption of cryptocurrencies.

Continuous Regulatory Inspection

Failure to implement KYC could result in considerable regulatory action, which would prevent widespread use of cryptocurrencies. Government agencies frequently impose severe penalties on sites that use cryptocurrencies. The act of punishing prevents the development of new crypto ventures.

Security issues

Implementing KYC may cause security issues, which could result in losses of money. The procedure could jeopardize a user’s assets, especially if they are using an internet platform. Cybercriminals can so utilize KYC information to obtain consumers’ funds inadvertently.

Impersonation

To access their offerings, a number of crypto-based projects may request private user information. Cases of impersonation may start to proliferate as soon as this information ends up in the wrong hands. Impersonation is the act of using another person’s data for illegal purposes, according to its definition. As a result, attackers can hijack a person’s identity to steal money or carry out money laundering. Innocent users who are motivated by profit may develop a negative reputation as a result of impersonation. Therefore, such a barrier may prevent the widespread use of virtual currencies.

Decentralization of KYC Bars

Decentralization in the context of cryptography refers to a system that runs independently of centralized control. Every transaction in a blockchain network is verified by a number of distributed computers. This framework makes sure that the community continues to make the decisions. Furthermore, transactions are confirmed more quickly than in centralized institutions. Decentralization is restricted by requiring KYC since platforms will have to adhere to regulatory standards.

Know Your Customer (KYC) conflicts in the Crypto Space

The pressure to implement KYC is becoming more apparent in various crypto platforms. These demands come from different regulatory bodies which advise crypto exchanges to collect private information. Examples of such platforms include:

BitMex

BitMex users could only trade with the platform by providing their email addresses and creating a password. Later, BitMex started to ask for further details including a user’s location and trading history. By using this technique, BitMex can explore more prospects while still adhering to the rules and regulations.

Binance

In 2021, regulators from many nations were keeping a close eye on Binance. The exchange tried to reduce legal scrutiny by tightening its verification criteria. Users must currently present their official IDs and successfully complete a facial verification process in order to use Binance’s KYC.

Customers can access fundamental services including crypto trading, withdrawals, and deposits by following this approach. Existing users must also follow the new rule’s verification requirements. Users who don’t finish the process will therefore only have limited access to Binance’s services. In a perfect world, only withdrawals, redemptions, and order cancellations would be possible with insufficient KYC. Binance’s action was a necessary one that would help to ease tensions with national authorities.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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