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December 5, 2022
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KYC will not protect us but Bitcoin will

As regulators try to institute KYC and AML rules at the risk of our personal data, Bitcoin and encryption offer salvation.

Our world is full of heinous threats, crime and violence. Human trafficking, child abuse, state-sponsored violence, terrorism and a list of other heinous acts require tools to counterattack and ultimately reduce their frequency as close to zero as possible. Unfortunately, there is great disagreement about the types of tools we should use to be as successful as possible in this endeavor. What we do know is that KYC will not protect us but the Bitcoin Yes.

On a field, we have offensive tactics. These tools try to reduce the level of horrible crimes by making criminal activity more difficult. This could be in the form of cutting terrorist financing through anti-money laundering (AML) regulations, know your customer (KYC) or giving companies the power to scan photos of users to capture images of child abuse.

KYC will not protect us but Bitcoin will

While offensive tactics are easy to rally people – who doesn’t want to stop human trafficking? The long-term effectiveness and downstream consequences of these tactics are rarely discussed. Some of the consequences, such as reduced business efficiency, are easily ridiculed by defenders of offensive tactics.

Who cares if a company loses some profits if it means we can catch child abusers? However, these tactics have very real costs for the most vulnerable among us, as well as for society at large. Furthermore, the long-term effectiveness of offensive tactics is, at best, questionable.

The Disadvantages of Regulatory Tactics.

Let’s talk about the downsides of offensive tactics, using KYC regulations as an example. Although the legal definition of KYC is specific to banks and finance, there are similar rules in place across industries. In this post, I define KYC as the requirement for a person to provide identification and/or private information before being able to receive a product or service, regardless of industry.

KYC is required to obtain bank accounts, health, employment, housing and even phone/internet services. The stated purpose of KYC is essentially to ensure that a terrorist is prevented from using the banking system to finance his activities or that a human trafficker is prevented from using the local Internet provider. This sounds noble enough, but is it really effective?

In the short term, KYC can be effective in catching less intelligent and less adaptable criminals. It is certainly possible that banks will help stop some money laundering when an identity verification program is first launched. However, we should expect most criminals to adapt quickly by using false documents, bribing employees, or leaving the banking industry entirely. The most skilled criminals will find and develop tools that will allow them to continue their activities for the long term.

While the benefits of KYC are vague, the costs are clear. First, the costs for ordinary people are enormous. Personally identifiable information, such as social security numbers, birth dates and addresses, can be used to steal identities, physically attack or financially steal completely innocent individuals and their families. Even if data is not stolen from the primary source, it can be sold to secondary organizations without the user’s permission. While some people prefer to adhere to this system, the inability to opt for personal data collection is an asymmetry that benefits corporations and governments at the expense of ordinary people.

Second, KYC presents incalculable potential future costs ​​for society at large. KYC provides a treasure trove of data for government entities. If you trust the current government regime, that might look good. However, an empowerment for political leaders that you like today also means an empowerment for political leaders that you may vehemently disagree with tomorrow. If you would be afraid to grant a certain power to an enemy, then that power simply shouldn’t exist.

To summarize the social costs: In the short term, KYC requires all users to upload private information, increasing the potential attack surface for each individual. In the long run, KYC provides increased surveillance powers to unknown future government leaders who can use this power to harm society.

Bitcoin presents hope

While offensive general attack tactics provide a number of disadvantages with questionable advantages, there is still hope. If the goal is to stop the bad guys from winning, defense is more important than offense because of a fundamental asymmetry: if you score, you can win; if your opponent doesn’t score, he can’t win. Therefore, providing the tools for individuals to defend themselves and others is critical.

KYC is an awkward and unique approach for everyone. As such, it is destined to be almost always ineffective, as individual criminals can adapt much faster than national or global KYC regulations. Encryption, however, provides a defensive tool that individuals can leverage in different ways, depending on the circumstances. Encryption, when done correctly, cannot be hacked and is therefore completely private from any and all intruders. It is the ultimate defensive tool for individuals in the digital age. Remember, if attackers can’t score, they can’t win. Whether it’s encrypted message (eg Signal), encrypted email (eg ProtonMail) or encrypted value (eg Bitcoin), encryption empowers not just those who want privacy, but more importantly, those who want privacy. who really need privacy. While KYC harms vulnerable people who demand privacy.

The current state of the world makes it very difficult to live in society without systematically providing private information. However, this is rapidly changing. First, the increasing amount of data collection and surveillance has awakened many people to the importance of privacy.

The common question of “why do you need privacy if you’re not a criminal?” is being challenged more powerfully with every major data leak and every personalized ad based on an item mentioned in a private conversation.

While increased surveillance has forced many to be more concerned about their personal privacy, perhaps the most important development is the increase in cryptographic-based tools available to the world.

There is still a lot to learn

For many, the introduction of Bitcoin, the world’s leading encrypted money, leads them to discover the power of encryption that changes the world. Bitcoin uses encryption to provide the most defensive form of ownership that has ever existed. It’s an unbreakable method of storing value that can be effectively teleported anywhere on Earth, protected across multiple physical jurisdictions using multisig, or transported across borders through memorization.

Traditional forms of storing value, such as gold, dollars, and real estate, are limited by their physical nature, regulations such as KYC, or both. Dollars cannot be teleported across the ocean in ten minutes. Gold cannot use multisig to distribute its bearer properties across different physical locations. Words cannot be memorized.

Many politicians argue that Bitcoin and other cryptographic-based innovations pose a threat because they cannot be regulated like more traditional technologies. Others conclude that encryption-based technologies are primarily for evading taxes or hiding bad deeds.

Both completely miss the point when framing the situation through the lens of the existing system. Encryption is a radical change in the structure that underlies our entire society. Never before has there been anything that is not confiscable, insurmountable and indestructible.

Is encryption the way?

Encryption allows these things to exist, while Bitcoin provides the financial incentive for people around the world to learn, use and defend encryption. Critics are indeed correct that Bitcoin and other encryption tools cannot be regulated and can be used to evade taxes or hide bad deeds. However, being correct is as useless as a king of the 1400s realizing that the press can be used to print information he doesn’t want published.

In the long run, they are fighting an inevitable force that cannot be shut down, hacked or destroyed. When faced with an unavoidable technology, it is far better to embrace, develop and defend its positive qualities than to waste energy trying to stop it. Fortunately, all kinds of people across the world are starting to realize this.

The power and availability of defensive tactics have never been as strong as they are today. The reality is that criminals can and will use the most powerful tools at their disposal to commit terrible crimes. This was and will always be true. Once again, we must remember the importance of defense over attack: an attacker cannot win if he does not score. Potential victims and those living in fear can now begin to improve their security simply by reducing their attack surface.

If we are to help the most victimized people among us, we must encourage the deployment of defensive tactics to empower the common people, rather than taking untargeted offensive actions that harm the common people.

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