Anonymity and secure transactions have been at the core of cryptocurrency adoption since the publication of Satoshi Nakamoto’s Bitcoin white paper. Blockchain technology allows for users to make peer-to-peer transactions without any kind of third-party interference or checks and all while keeping users’ identity and details secure.
Know Your Customer procedures have been brought into force to enable finance businesses and businesses that deal in a lot of money exchange to help combat financial crimes, such as money laundering. KYC is a big part of the current push to achieve international anti money-laundering, but naturally bumps heads with the crypto premise.
In a particularly controversial move, European Parliament gave the green light to ban anonymous cryptocurrency transfers. Approved in March 2024, you can find out more here about the law and its impact when it officially becomes law in 2027. So, how does KYC play into this and impact crypto users?
Exchanges bending the knee to financial regulators
In pursuit of being seen as a legitimate industry that battles against the stigma, the major crypto exchanges have had to comply with the financial requirements of national governments. It takes away some of the benefits of crypto over fiat money as a currency, but the goal is to counter financial crimes.
So, pretty much all of the major exchanges now deploy KYC measures to prevent the illegal use of cryptocurrencies, aligning them with traditional banks. It’s become an important part of enabling the crypto industry to exist and reach more users, as you can read detailed in this article.
However, in completing KYC protocols, a user seeking to gain access to identity-protecting and secure coins has to give over their legal name, date of birth, address, and national identification number to a third-party company. For some, this is a deal breaker and has thrust them into the less secure and more expensive arms of non-KYC exchanges.
Impacting crypto adoption and use
While the most popular exchanges require KYC checks, many industries that may deal with crypto require further identity authentification measures. This is the case in the US iGaming scene. Many players seek out instant-withdrawal casinos because of their capacity to send out winnings immediately.
Crypto could easily be one of these instant-withdrawal options, but crypto casinos aren’t licensed in the US. This is said to be because KYC checks are required in the country. You can click here to read the full report, but online casino gamers in the US don’t seem hindered by this. The top instant-withdrawal casinos are still very popular and are competitive enough to offer no-deposit bonuses.
Still, were this second tier of KYC checks not required – under the assumption that most crypto owners now buy it via KYC exchanges – more people would be able to use crypto and the industry would be able to reach more customers as a result.
A similar approach to enhance AML efforts, which is always a good stance, can be seen in the Nigerian investing landscape. The nation’s central bank has stopped some fintech companies in trading and crypto from taking new customers until KYC compliance is strengthened. That said, existing customers were able to continue as normal.
Cryptocurrency does offer users significant benefits over the mainstream state of play for monetary transactions. One of those benefits is being eroded by the multiple checkpoints of KYC, though. Whether this will strengthen the industry in the eyes of the mainstream or hinder its growth is yet to be seen.
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