KYC in the world of NFTs: necessary evil or a messiah?
One of the most discussed aspects of all crypto businesses is KYC. Hardcore fans argue that the point of cryptocurrencies is that all of their components should be untraceable to throw off the yoke of oppressive governments and offer people real freedom.
On the other hand, crypto needs regulation. The legal aspect of cryptocurrency will decide the fate of this world, and to a large extent whether many countries and businesses will embrace it, which is vital.
There are few topics more heatedly debated, and for good reason: the idea of KYC is so ambivalent due to the complexity of the law on one side and the code on the other, that even for seasoned professionals it's akin to the idea of making a decision for House M.D. without the proper qualifications. But while this article by no means puts you in a position to make Senate decisions nor provides investment recommendations, it is actually very interesting to think about.
KYC is necessary to prevent crime. Fans argue that statistically cash is used for criminal purposes at a much higher percentage than cryptocurrencies, so it makes no sense to portray cryptocurrencies as a haven for drug and gun traffickers, but this statistic is that way because law enforcement is shutting down countless criminal groups that use cryptocurrencies.
The world of cryptocurrencies without regulation would be similar to the world of fiat currencies without police: crime rates would go through the roof, chaos and despair would reign, and civilization would potentially grind to a halt. Yes, privacy is currently a problem.
KYC has been known in the past to snap at the heels of privacy, sometimes in major ways. A dramatic example of this is the 66% of Coinbase users who wanted to leave the platform due to serious privacy breaches. Government control, when abused, has made people feel defenseless throughout history (e.g., Snowden's position on the U.S. government and banking crimes). But these are all cases of abuse of power. What about control exercised in a humane way? What would be the advantages of KYC without its bad points?
The biggest benefit of KYC is protection from criminals, including but not limited to hackers, terrorists, and money launderers. NFTs can also be counterfeited, and there are risks associated with buying NFTs. Like all valuable things, NFTs are very attractive to hackers of all kinds, which is something platforms like Artessere with its KYC can protect you from. Read more about how Artessere can cover you, including from accidental damage or loss, here.
Regulations aren't just useful when it comes to maintaining law and order. KYC can help industries operate much faster and with fewer resources, as in the case of diamond tracking with blockchain.
Applying proper KYC-based practices allowed HSBC to use blockchain to send a shipment of soybeans from Argentina to Malaysia using R3's Corda blockchain platform:
"For businesses, it means trade finance transactions have become easier, faster, more transparent and more secure," said Vivek Ramachandran, head of growth and innovation at HSBC. "Paper reconciliation is eliminated as all parties are connected on the platform and updates are instantaneous. The speed of implementation could mean that companies can free up liquidity.
Although we can't possibly do a full analysis here, as this topic deserves, it's clear after just a quick look that the pros are greater than the cons (pros wear blue, cons wear striped pajamas). KYC is necessary, and in some areas where it can be used without violating user privacy, it's even essential. The question is how to calibrate it so that everyone (or at least most) is happy. That's surely only a matter of time.
Artessere is one of the most experienced and tenacious advocates of regulations. If you'd like to learn more about our laws and licenses, please contact us. We’re always happy to hear from you!