Crypto & KYC

A crypto based alternative to government issued documents as a form of identifying a customer.

Daniel Goldman
Jul 30, 2019 · 4 min read
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KYC or “know your customer” is a process of verifying the identity of a user before they are able to fully use a platform. Exchanges are generally required to obtain proof of identity in order to allow a user to access the exchange, especially when fiat is involved. A lot of people don’t like the idea of KYC. I know that suggestions to utilize KYC in some form don’t generally go over well in Belacam or publish0x forums. I don’t blame people for disliking them, because it does require some kind of official identifying documents. But I’m also not as obsessed with privacy and anonymity as some others out there.

For one thing, I don’t believe that blockchain and crypto have to revolve around these two ideals. A blockchain is just some cryptographically secured immutable ledger. For another, I recognize that privacy is largely a modern luxury. But I think we that with blockchain and crypto it’s possible to have a happy medium. I also recognize that a business knowing their customer is not the same as government knowing them.

Keybase Identity Proofs

But maybe crypto has a solution for us, that’s different from traditional KYC. I’m a huge fan of Keybase. It’s a communication platform with crypto in mind from the core. A major feature of Keybase is identify proofs. Keybase uses a signed message to prove that a website or other account is indeed owned by a given account. It doesn’t link an account to an actual person, but it does link it to a private key. Therefore we can’t be confident that a person is any specific individual but we can be fairly confident that two accounts are managed by the same individual, and for KYC that might be good enough in most cases.

Mastadon

Up until recently, Keybase only had preconfigured proof options so only the major platforms could have proven identifies. With Mastadon integration, now any site can take advantage of Keybase Identity Proofs. There’s even a tutorial for proof integration to make it easier. It seems pretty simple for anyone with basic programming skills.

Usage

So how might a proof based KYC be used? There are a few ways. Belacam, publish0x, and others, try to ensure that an account is a real account and not a spam account, before giving a payout. These proofs can be used to investigate the account and speed up the process. This method wouldn’t necessarily allow for immediate access to funds, especially for platforms like publish0x, which use cold storage to hold their assets. But it could definitely help speed up the process and reduce the headaches for valid users who have to wait a long time for approval because the team isn’t certain about the validity of the account.

Moreover, proof based KYC can also be used with referral programs and airdrops. Because it’s easy to investigate proofs, when a new account signs up, the more proofs linked to the registering address, and the better the quality of those proofs — proving identity on a well known platform should be weighted higher — the higher the referral/signup bonus be.

Not True Anonymity

True; it’s not ensuring perfect anonymity, but again, I don’t think that crypto always has to be about anonymity. A person who wants to get paid by a business for doing something is likely going to lose a certain degree of anonymity. A person should utilize a fully decentralized system and use numerous addresses if they really want to be anonymous. They should also avoid leaving the house, wear masks when walking around the neighborhood, and so on. I don’t want the government meddling in my affairs; I don’t want the government looking into what I’m doing because they have no place in my life. But that doesn’t mean that I want to hide my identity from everyone in the world for everything that I do.

Final Thoughts

KYC is not a bad thing. It’s important for businesses to be able to protect themselves against fake accounts, which are especially easily to create if they’re just tied to a crypto address. Fake accounts have the potential to significantly damage dapps, and hurt the consumer. When a fake account is used to sign up with a referral link, the person who created the fake account is stealing from everyone.

But KYC using legal documents is not the only solution. Thanks to crypto and blockchain themselves, we have a new way to know a person: cryptographically signed identity proofs. These types of proofs are very difficult to forge, unlike standard KYC proofs. And they don’t necessarily link to a person, but rather to a crypt-identity. I think it’s an option that a lot of dapps should look into. Sure, they’re not entirely private, but we’re a social species that interacts with one another. We don’t live in a world of pure anonymity anyway.

The B.C.U. Times

The B.C.U.

Daniel Goldman

Written by

I’m a polymath and a rōnin scholar. That is to say that I enjoy studying many different topics. Find more at http://danielgoldman.us

The B.C.U. Times

The B.C.U. Times is a publication dedicated to the promotion of the blockchain and cryptoasset user experience and ecosystem.

Daniel Goldman

Written by

I’m a polymath and a rōnin scholar. That is to say that I enjoy studying many different topics. Find more at http://danielgoldman.us

The B.C.U. Times

The B.C.U. Times is a publication dedicated to the promotion of the blockchain and cryptoasset user experience and ecosystem.

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