The Importance of Timely KYC

June 2018
It is inevitable that regulations will become the norm for cryptocurrency and blockchain as the technology seeks to become an accepted solution across mainstream industries. As regulators seek to prevent fraud and protect investors, or to prevent illicit activity, regulation is often seen as a positive step; however, in the cryptocurrency and blockchain scenes, there is sometimes controversy around what is seen to be centralised control being forced onto a decentralised system. The issue of KYC in particular, especially for ICOs and token events, has been derided by many long-time and hard-core crypto fans, but is now almost always required for participants in such events. Whilst many are coming round to the idea of KYC, there are still those that resent it, particularly in certain circumstances.

Tezos was all the rage last year when its ICO broke records to raise $232 million in bitcoin and ether, all to be used to fund the development of its proposed Proof-of-Stake platform for smart contracts and decentralised applications. At the time, KYC for ICOs was a mostly alien idea to the community of crypto-investors and ICO participants - many of whom were seeking a way to invest in start-ups and companies without the traditional restrictions, and without being slowed down by the KYC process.

What those who invested in Tezos failed to predict, though, was the decision that the Tezos Founation took on the 10th of June, almost a year after the ICO had begun, to retroactively require that their investors undergo KYC. Understandably, this has caused an uproar amongst participants. Despite the announcement stating that the decision has been made in order to ‘comply with a rapidly evolving regulatory landscape’, many believe that it is an unacceptable move.

The project has already attracted a lot of controversy and criticism in the delays it has experienced (although the most current timeline has it set for a launch this summer), but this latest issue is cause for concern to those affected mainly because they are unhappy with the company having access to their personal details, and not knowing what Tezos will do with the information. Had this requirement been stated from the start there would be little issue - some would simply have chosen not to invest; however, the retroactive nature is what most have an issue with.

Complicating matters further is the potential issue for those who invested from countries where the ICO regulation status has changed since the Tezos ICO ended. This is a problem with no answer readily available. Additionally, there are those who have questioned whether a refusal to participate in this KYC will result in their tokens being withheld, or their money refunded, or if other measures will be taken. These uncertainties add to the hit that Tezos’ reputation is taking with an already controversial measure.

With a fully self-sovereign Blockpass identity, KYC, even when carried out retroactively, would not be an issue when it comes to feelings of mistrust or the loss of control that comes from giving another person access to view your data. By employing Zero Knowledge Proofs and Homomorphic Encryption, Blockpass would ensure that data privacy and data control would be fully in the hands of the user; no-one else would be able to see or share their data, removing the suspicion and bad will that, in this instance, the issue is generating with Tezos investors.

The end goal for Tezos, regulators and most other companies is that KYC checks be carried out to protect investors, eliminate fraud and corruption, stop money laundering, terrorist financing etc. Today this means the repetitive, time consuming and tedious filling out of forms, along with giving over personal data to companies that can then potentially use it however they want. It is only natural that people don’t like this - even when they know it is necessary - and will kick up a fuss when required to do so unexpectedly. In a world where Blockpass is already established, this could all be avoided.