Coinbase’s recent data breach is prompting renewed calls to remove Know Your Customer (KYC) requirements in licensed cryptocurrency exchanges. Illicit actors bribed the exchange’s overseas customer service agents to gain access to the personal information of 70,000 users.
Coinbase Data Breach
In December 2024, Coinbase reported that criminals gained access to user data through corruption schemes. The company acknowledged the leak of personal information, including ID photos. In connection, developer Banteg expressed the opinion that KYC needs to be abolished, arguing that the practice helps criminals more than it protects users.
Issues with KYC in the Crypto Industry
KYC requirements were intended to reduce fraud and money laundering, but vulnerabilities persist. Experts argue that even with technologies such as fake document generation, KYC verification can be bypassed. Cybersecurity professionals urge for modernization of user identification approaches.
Future of KYC and Alternatives
Some users advocate replacing KYC with new technologies like zero-knowledge proof (ZK). This technology could allow for regulatory compliance while protecting user privacy. However, the implementation of ZK approaches still faces challenges related to high costs and computational complexity.
The Coinbase data breach once again raises the question of the viability of KYC within cryptocurrency regulation. While there are proposals for modernization, traditional measures remain in force for now.
