To gain more mainstream adoption, cryptocurrency applications are facing the pressure to compromise one of the main tenets of its creators, which is anonymity. In line with government regulations, cryptocurrency operators are increasingly seeking to verify the identities of their users. In some cases, users of cryptocurrency trading platforms are required to have an account with a local bank defeating one of the aims of cryptocurrency—to serve the unbanked.
In an interview recently, Erik Voorhees, the founder of ShapeShift explained that Know – Your – Customer (KYC) requirements and Anti-money laundering (AML) policies were becoming the norm in the cryptocurrency space. Shapeshift, a prominent cryptocurrency trading platform in September introduced KYC and AML conditions for its users. Voorhees explains that it is not a very straightforward process.
We’ve since, just about a month ago changed that model to require accounts and we have to do KYC on users now, which means know-your-customer, which is an Orwellian construct to basically enlist private companies to do government surveillance for the government, that’s pretty endemic in all financial companies around the world at this point.”
KYC and AML becoming Rampant
In the past, the platform just like some others did not require users to fill out identity verification forms but had to give into the policies which he says an “endemic” in financial institutions. The explained that the legal framework was changing globally as governments are keeping close tabs on cryptocurrency activities to prevent fraud and protect investors.
IDEX, a popular decentralized exchange, now follows similar KYC and AML policies. Voorhees observed that it was a big deal given the promise decentralized exchanges (DEX) hold for enthusiasts. These DEXs, often referred to as the future of crypto exchanges are designed to operate without interference from governments or any third party. IDEX, for its part, wants to comply with money laundering and governmental regulations.
Regulatory Struggles with Cryptocurrency
Voorhees went on to predict that cryptocurrency operations will face “constant struggle” with regulatory bodies making particular mention of the United States Securities and Exchange Commission (SEC).
The SEC has proven a difficult ground to conquer as it has deprived the cryptocurrency community countless times. Notable is its continued denial of cryptocurrency-based exchange-traded funds (ETFs). The commission which had earlier denied bitcoin ETF proposals from Gemini crypto exchange denied another 9 proposals in one fell swoop. It has since decided to review that decision and a new decision is expected this week.
As Smartereum reported, the SEC said its priority is to reduce cryptocurrency related crimes. As part of its report titled “Focus on the Main Street Investor”, the watchdog explained that several financial scams were associated with cryptocurrency hence the need to pay close attention to the sector.
Outside the United States, cryptocurrency operators are also required to adhere to strict KYC and AML policies. In countries like Japan, South Korea and recently Hong Kong, crypto exchanges have regulatory guidelines for crypto activities. But Voorhees insists that crypto regulations are still gray areas which will be figured out within the next ten years.