KYC, a Mass Surveillance Instrument
KYC or ‘Know Your Customer’ is a regulation that any company, with a banking or financial relationship, must comply with.
These rules are enforced all over the world, and are aimed at ensuring that a business, acting as an exchange and/or money transmitter, has ‘adequate’ information about each customer it serves.
The rationale that regulators use is that KYC is created to combat money laundering and terrorist financing, but we know, and it has been shown that over time and since its implementation in the 1970s, it is not effective, and banks are the first launderers of illicit funds, not complying with their own KYC, but complying with yours.
The ‘progressive KYC’ is a disease that is spreading slowly, but with dark ends, which exceed its initial purpose.
If you buy through one of these regulated entities, they essentially tag your fund addresses with your personal identity. This makes it easier for government-contracted blockchain surveillance companies like Chainalysis , the largest forensic consultancy)
- Track your spending habits
- Prevent you from using other unregulated services
- Confiscate your funds, when deemed necessary
- Impose tax obligations
- They usually know more about you than they should
What Information Will You Have to Provide?
In order to buy cryptocurrencies on a KYC exchange, users will need to provide personal information. The amount you need to provide varies from one to another, some may require a simple name for small amounts (you can easily provide an alias) and others may require all the information. Most will ask for any combination of the following data:
- Name and surname
- Phone number
- country of residence
- Driver’s license
- Identification document
- A selfie holding a piece of paper with the name of the exchange and the date
- A video call with the exchange.
Why is it a Risk to Provide this Information?
KYC information links your personal identity to any cryptocurrency you purchase. The exchange knows:
- who are you
- how much did you buy
- when did you buy it
- your bank information
- where do you transfer your funds
Due to incompetent security practices at some of these companies. How would you feel if your name, address, photo, and exactly how much funds you have, were stolen from an exchange and sold to the highest bidder on a darknet market? This sounds like alarmism, but data breaches happen far too often!
Most of these exchanges work in some way directly with chain surveillance companies (and some directly with government agencies!) to comply with their chosen jurisdiction. The completely transparent nature of most blockchains means that anyone with the right set of tools can follow your activity. If you withdraw or deposit with an entity that regulators don’t like, they can freeze your funds, or even close your account. This doesn’t exactly fit with the censorship-resistant properties that blockchain technology was created for.
You Have Other Options
Fortunately, there are some options to buy cryptocurrencies without KYC sources and it is the P2P (peer to peer) exchange, in which you will be negotiating directly with another person and not with a centralized third party.
ATMs are another great option, but use them with caution as some still require different levels of identification depending on the amount being purchased. Many will only require a phone number, so be sure to use one that isn’t tagged with your personal identity. Check out Coin ATM Radar for a great overview of what’s available in your local area.
Does Buying Crypto without KYC come with a Hefty Premium?
It is absolutely true that you will see some offers to buy cryptocurrencies on P2P exchanges for some very high premiums over the spot price . However, if you’re patient enough, you can pick some up on the spot or just marginally (1–4%) above. Both Bisq and Hodl Hodl allow you to create a ‘buy offer’ which is essentially telling the market that you want to buy ‘X’ amount of bitcoin at ‘X%’ relative to the spot price. All you need to do then is wait for a seller to accept your offer and complete the trade.
What to do if you have already bought cryptocurrencies with KYC
Once you’ve bought from a KYC source, you can never go back. Not even with advanced techniques like Coinjoin that create forward thinking privacy. You have three main options:
Sell your funds on the same exchange
Sell your KYC-purchased coins on the exchange you bought them from. Depending on the jurisdiction, this will likely create a taxable event for you to deal with, but then you’ll have a paper record to prove you no longer own those coins. This process gives you a ‘clean start’ from which you can start through a non-KYC source, safe in the knowledge that you are no longer vulnerable to the risks outlined above.
Stop buying through KYC sources, fully segregate and label those funds. Then, start shopping through a non-KYC source, making sure to maintain complete segregation. This option still leaves you vulnerable to some of the risks outlined above, but you can select those smaller amounts for KYC or those you don’t want to sell and deal with tax events.
This is more extreme, but could be an option to free you from future obligations. Of course, this is not a 100% guarantee as certain jurisdictions may have information sharing agreements.