Privacy is critical, and the entire idea of cryptocurrencies is built around this. While the crypto ecosystem was designed to function without requiring any form of identification, it has become the preferred instrument used for illicit activities. Many claim that anonymity is a necessary aspect of the industry, but in the eyes of the regulators, that’s a big no.

The rapid growth in the number of hacks and scams over the past few years, resulting in losses worth billions, has compelled the regulators to keep a close watch on the industry. This means stricter Know Your Customers (KYC) rules that need to be followed.

KYC is a tool used to prevent the use of cryptocurrencies for illegal purposes. It installs a level of trust between both buyers and sellers. The fact that there are systems in place to track users and transactions means it can be used as a legitimate alternative to fiat cash since it prevents criminal behavior from occurring.

However, if the data falls into the wrong hands, it could pose a threat to a user’s funds and could empty their wallets. The crypto industry has seen multiple cases of KYC breach, where sensitive customer information has been stolen by hackers. This has stirred a bit of unrest among many crypto enthusiasts, and crypto exchanges are making efforts to bypass KYC rules for customer protection.

Digitex says no

According to a public video statement on March 4, Digitex, a Seychelles-based crypto derivatives exchange, has decided to start removing KYC identification this week, responding to a significant user data leakage that happened last month.

In a public video statement, Adam Todd, CEO at Digitex Futures, revealed that the platform is set to remove all user identification processes from its platform as of April 2020. He announced:

“As of the end of this week, we’re gonna remove all KYC identity verification from every part of our exchange. To buy Digitex tokens from our treasury, you will not need to do KYC. And when we go mainnet in April, there will be no KYC identity verification requirements of any kind to use our exchange.”

Data Breach

On February 29, Digitex announced that the leaker had full access to all of Digitex’s KYC data and that they were also directly affiliated with the company. According to Digitex communications lead, Christina Comben:

“It was all arranged by an ex-employee, I can’t say much more about this in terms of motives except that he was let go when it was discovered that he was working with a competing company (conflict of interest), since then he has tried to discredit Digitex and [the CEO, Adam Todd].”

According to media outlet Cointelegraph, at least five people have had IDs like passport photos and national identity cards leaked. As the perpetrator claims to have 8,000 documents in his possession, the exchange has not yet been able to confirm this.

Events like this often tend to draw people away from these centralized regulations. Many disagree with the tightening of controls, saying that, first of all, it would be difficult to set up domestic regulatory bodies. In the meantime, companies may suffer as they will become overburdened by reporting.

According to Chainalysis, It is not always possible to know the identity of the beneficiary, whom the destination wallet belongs to, and what type of a wallet it is. The company suggests that it would be more beneficial to collect wallet addresses of culprits instead of user’s personal information.



A KYC-less future could be chaotic

However, the main aim of financial regulators is to protect consumers of financial services. Regulating crypto assets is, therefore, a top priority on their list. The increasing amount of scams and exchange hacks, as well as pump and dump tokens that have troubled the market, have left millions of crypto investors with heavy losses.

As a result, regulators want to take action to prevent future investors from losing money to these types of problems. The potential for money laundering and terrorist financing is another issue that financial regulators and lawmakers want to keep an eye on. Hence, it is not too outrageous to believe that a KYC-less future won’t do much good to the crypto industry.