Cryptocurrencies started it's popularity by creating passive hatred towards the centralized govt and banking system. Each blockchain started since 2015 used the marketing buzzword of "anonymity" and "secure" transactions. Almost every blockchain started claiming how they are protecting the users making the anonymous smart contract and transactions.
We travelled a long way from that scenario to the current scenarios where users are being asked to verify their identity at the crypto exchanges.
Does it solve the problem of centralized govt and banks? Or does it creates new digital version of centralized banks and hidden overseas govt?
What happened to people who wanted anonymity? What happened to people who wanted anonymous transactions?
What is the Problem we have with KYC?
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Here are some of the problem I have noticed with KYCs in Crypto exchanges.
Identity Data Collection
Crypto exchanges like Binance have the Chinese founders with headquarters in Malta. You can imagine this sounds like pre 2010 era, where people used to open business with HQ in Belize, Switzerland to mask the identity and hold the foreign investments. When you give your passport, images and other national identification documents, those are stored in the hands of some of the companies which have origin like this. You can imagine you opening account and verifying your KYC through such companies means you are being part of sample data which they can use any way they see fit. Don't be surprised if Chinese military takes over Binance tomorrow and make use of the identification documents for infiltrating their spies into other cultures.
KYC means Centralization
Do you hate your local government? Do you hate your bank? But you have now given your documents to some centralized exchange which holds your data. How is that any different from current banks or govt who does the same. What stops your crypto exchange from being sold out to local govt or some bank or even foreign govt?
When you do KYC, you are pushing for centralization.
KYC & Illegitimate Usage
Have you seen the movie "In Time"? That movie shows how "Time" was used as a means to keep an eye on people. Also it was used as a currency. So when you do KYC. Your KYC is being used as a monitoring beacon. Wherever you go. Govt or any centralized system follows. How exactly are you going to avoid them from keeping a watch over your spending and your location?
Does that means all KYC is bad? No. Not at all.
Here's counter argument where KYC is necessary part of the functioning system.
KYC avoid Illegal Trade
You can find out that currently even if you don't do KYC, you can use the crypto for illegal purpose. And that can't be tracked. So when you do KYC, you only open up the endpoints of your transactions. Which makes the tracking partially easy for some crypto but not all. So KYC is necessary for some functions when the user wants to tap out of crypto to fiat.
So how do we solve the problem?
I think the problem that worries me right now is -
are we bowing down to fiat by limiting online sales to fiat OR we can avoid fiat and completely succumb to crypto?
What happened to people who wanted anonymity?
What happened to people who wanted anonymous transactions?
