ShapeShift cryptocurrency exchange moves toward mandatory user ID

Posted: 6 September 2018 5:13 pm
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It was only a matter of time. ShapeShift is settling down and leaving its wild days behind it.

ShapeShift, once known as one of the few exchanges that doesn't collect any user information or insist on the creation of accounts, has announced a drastic about-face on the topic, introducing a tiered membership scheme which unlocks additional benefits for higher tiers, such as reduced fees.

It also insists on the collection of "basic personal information".

"Yes, that last detail sucks," CEO Erik Voorhees says. "We would prefer if the collection of personal information was not a mandatory element. We still firmly believe that individuals, regardless of their race, religion, or nationality, deserve the right to financial privacy, just as they deserve the right to privacy in their thoughts, in their relationships, and in their communications. Such privacy is a foundational element of a civil and just society, and should be defended by all good people. We remain committed to that cause and it is best served if we are smart about our approach."

The membership program and new FOX token were always on the roadmap, Vorhees says, but the addition of mandatory ID was an unwanted extra added only under duress.

"To clarify, the Membership program and the FOX token are systems we wanted to build for our users," he said on Twitter. "The imposition of mandatory KYC within that Membership program is not something we want to do, nor something any user wants. It's a heavy decision done to derisk under duress."

The admission has many in the cryptocurrency space reckoning that Vorhees has now sold out, accusing him of no longer being about the music, man.

In response, Vorhees coolly did the Twitter equivalent of blinking "help me" in Morse code.

The way the wind is blowing

The debate around privacy in cryptocurrency has been going for a while, but it's now showing signs of coming to a head. The traditional and crypto worlds have been on a collision course for a long time, and right now exchanges like ShapeShift are being caught between them. Privacy coins are particularly contentious, and ShapeShift with its no-ID no-account access to any privacy coins desired was always going to be in the firing line.

Japan's regulators have moved to outright ban privacy coins entirely, while the US secret service has declared privacy coins to be one of the greatest emerging national security threats. But controlling access to cryptocurrency itself is quite unfeasible, in contrast to controlling access to exchanges.

No-ID centralised exchanges like ShapeShift were probably never going to be part of the future, and now the time has come. It's exactly why decentralised exchanges are seen as an important part of the crypto ecosystem.

The upshot is probably that ShapeShift will have to find a new life as a more typical exchange, checking its customers, opening up some fiat pathways and so on. The exchange is basically doing the equivalent of settling down, starting a family and putting its wild days behind it. It's not a bad life, as Binance CEO Changpeng Zhao says. The crypto world needs those responsible, level-headed centralised exchanges.

But there's also the importance of financial privacy and real decentralisation. If there's an upside to ShapeShift's AML compliance (other than stickin' it to the money launderers and terrorists) it's that it adds to the impetus to develop and use decentralised exchanges.

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The ethical and philosophical questions around that balance between privacy and authority aren't new, and there really is no right answer. Giving up on privacy in favour of authoritarianism isn't a good idea, but complete and utter privacy for everyone has some downsides too. Each "side" has pros and cons, and the smart path is all about creating a brand new system to maximise the pros and minimise the cons, rather than trying to push society towards one side or another.

Because for better or worse, cryptocurrency, blockchain and real decentralisation has already decided that financial privacy is going to be part of the future. It's only a matter of time before AML laws just can't be realistically enforced on decentralised exchange customers or creators. After all, the technology is unstoppable by design.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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