In the NZ crypto world, you will be hard pressed to find a regulated NZD on/offramp crypto service provider that isn’t required by law to get you to verify your ID to use their service.
This is the process of KYC, a mandatory requirement in NZ AML regulations, where all NZ financial services must require their users to verify their ID in order to use their platforms.
In this guide, we aim to break down the fundamentals and provide insight into the benefits and consequences of KYC, why it exists, and if this is even something you want to do. I have attempted to do this with a balanced perspective, so enjoy the read and my views.
What is KYC (Know Your Customer)?
KYC, otherwise known as Know Your Customer, is the set of procedures and processes NZ cryptocurrency service providers must employ to ensure they comply with NZ AML (Anti-Money-Laundering) regulations. KYC requires all new users to verify their real world identities, which then gets connected to their trading account and activity. KYC requires new users to verify their name, address, bank, and other potentially relevant information.
In simple words, KYC is the ID wall you face when you want to buy and sell crypto through regulated crypto service providers in NZ. If you don’t do KYC, you can’t use their platform, and if the crypto platform doesn’t do KYC, they are subject to fines, de-banking or worse.
It is worth noting that KYC is not required only by NZ crypto services, but rather almost all financial services. I.e. when setting up a bank account, using Sharsies, registering an LLC.
Identity Verification
A key aspect of KYC is identity verification, not just for regulatory compliance but also as a means to ensure that crypto service providers know they are dealing with genuine users, specifically the user who signed up for their platform. This is one perspective, KYC being a means to to verify user identities in order for them access their crypto service accounts.
Your KYC data is also used for customer service and marketing. It’s important to consider that if this KYC data was leaked or hacked, that would become a massive PR disaster for any service or user victim to this scenario. For this reason, financial services are highly incentivized to protect your personal user data, or face loss of trust, penalties and fallout.
NZ KYC/AML Crypto Regulation
By NZ law, specifically the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, all NZ financial service providers which classify as a VASP (Virtual Asset Service Provider) are required to comply with New Zealand KYC and AML regulations.
These regulations are designed to stamp out tax fraud, terrorism financing, and ID fraud.
Before 2016, most crypto service providers did not collect or require users to KYC. A notable example of this is Cryptopia, the Christchurch crypto exchange that once hosted over two million local and international users, many of who did not verify their real life ID.
Today, almost every crypto service provider in NZ that facilitates transactions between crypto and NZD comply with these regulations. With the rise of crypto as a mainstream asset class, the NZ government, DIA, IRD, and other regulators have invested resources into ensuring that all NZ financial service providers comply with KYC/AML regulations.
A notable example of this was on September 27, 2020, when Easy Crypto was forced by the IRD to hand over all records of their users and user activity to the NZ Government. Easy Crypto approached this request transparently in their what is now historic post in r/NZBitcoin, New Zealand’s legacy Bitcoin forum. Leading up to this event, Easy Crypto appealed to various human rights groups, explored exemptions, and constitutional rights. Ultimately the information was handed over, along side other NZ crypto service providers.
In my own opinion, Easy Crypto handled this in the best way they could, with transparency, and if they didn’t have to comply, they probably wouldn’t have shared all user information. Other crypto platforms in NZ made no mention to their users, a serious breach in privacy.
NZ crypto services are also legally obligated to report any form of fraud, tax evasion, or user engagement in any kind of illegal activity. This means that although your personal data is highly secured from civilians with malicious intentions, the backdoor is wide open to the NZ government, NZ Security Intelligence Service, Police, IRD, the 5 Eyes and beyond.
Blockchain Surveillance
The most notable implication of KYC is that once your real world identity is tethered to your crypto activity, every transaction you make is also bound to your real world identity. This data is then, again by law, required to be passed on to the IRD and NZ Government.
An analogy I like to use is that once you’ve performed KYC and your personal crypto wallet and crypto activity is tethered to your identity, it’s like livestreaming from your device every crypto transaction that you make – including what wallets you receive or send payment to.
Although NZ crypto service providers like Easy Crypto take extreme care in protecting your personal data and identity, the record of your activity still ends up in the hands of the NZ Government and IRD. There is a common myth that crypto is anonymous, but the realty is the blockchain is an incredibly transparent ledger which can be digitally analysed with AI.
The most prevalent blockchain surveillance / analytics software on Earth is Chainalysis.
Chainalysis
Chainalysis, used in 70+ countries, is the world’s most advanced blockchain surveillance software, who’s business model is to lease investigation software to governments and companies to track and identify users of cryptocurrency. They have a strong presence in the New Zealand crypto industry, used by the IRD, Easy Crypto, Binance and beyond.
They are used by law enforcement around the world, and stand as the titan in blockchain surveillance technology. They use AI, transaction networking and wallet flagging systems to associate KYC’ed users to blacklisted wallets, creating a visual map of user activity.
Below is a screenshot of the inside of the Chainalysis Dashboard at one point in time.
As you can see, the software automatically calculates user risk factor by analyzing which wallets their transactional activity is associated with. Darknet marketplaces, for example are red flagged, and if someone makes a payment to them, service providers will know.
What You Shouldn't Do
This section is pretty straight forward – don’t do anything illegal or actions that you don’t want the government, your crypto service provider, or any other authority knowing about.
The Argument for KYC
The argument in favour of KYC is that it helps prevent fraud, identity theft, tax evasion, terrorism, illegal activity and the acquisition and trade of illegal goods and services. Pro KYC proponents say it prevents the erosion of the integrity, trust, fairness, and good faith of our financial systems – and that it helps maintain high standards in how individuals conduct themselves and their social contract with their government. KYC is helpful for law enforcement, creating legitimacy and trust in crypto, maintaining compliance with global standards, mitigating risk from bad actors, fraudsters, and other ill intentioned citizens.
Individuals and services on this side are suspicious and often opposed to privacy coins such as Monero, P2P trading, crypto mixers, and any form of failure to comply with law.
The Argument against KYC
The argument against KYC is that of privacy concerns, security risks, deterrence of crypto adoption, ineffectiveness in preventing illicit activities, exclusion of unbanked populations, and the vast capacity for abuse, discrimination and weaponization of KYC information in the case governments decide that crypto is too ‘dangerous’ to be left to the free market.
KYC critics argue unelected organizations like the WEF, IMF and other globalist entities pressure countries to use KYC to undermine the decentralized cryptocurrency revolution, ensuring their control of the global financial system. They are also critical of mission drift, specifically that the implementation of KYC is contrary to the original ethos of Bitcoin, which aimed to created a decentralized and trustless system. KYC requirements introduce centralized weak points of control, undermining the permissionless nature of the crypto space and the fundamental principles of decentralization, privacy, liberty and freedom.
My Own Perspective
In my opinion, pretty much all the points above both in favour and against KYC are valid.
It really comes down to the values of the person or the entity. However this of course, is the crypto space. Bitcoin (BTC) was created to establish a new financial system built to empower the individual by maximizing their freedom, autonomy, ownership and privacy.
Over the last few years we have seen many major non-KYC peer to peer marketplaces such as Local Bitcoins and Paxful being forced to close down due to regulatory pressure.
We’ve also seen sweeping demands by governments to hand over personal user data.
To me, KYC and global AML regulations undermine the decentralized and privacy centric ethos of the emerging crypto space. Without those principles, this might as well be the stock market. I personally priorities the succession of decentralization over bolstering the surveillance and compliance apparatus of governments interested in maintaining the systems that have clearly failed to cater to the average person across many countries.
For that reason, I believe it is incredibly important that non-KYC options of acquiring crypto remain accessible on a global scale especially to those who are politically compromised, live under authoritarian regimes, and those who seek sovereignty over their own finances.
Alternatives to KYC
As mentioned above, it has become more difficult to access crypto where you are not required to perform KYC. The good news is that raw P2P (buying and selling between two individuals) is perfectly legal – and you can still find quality P2P marketplaces even in NZ.
The largest one in NZ is called the New Zealand Peer to Peer Crypto Marketplace, created and administrated by yours truly in aims to ensure a bedrock foundation for the adoption of decentralized digital currency where Kiwis don’t have to make compromises on their financial privacy in order to acquire and trade cryptocurrency in Aotearoa New Zealand.
In no way, shape or form is this a recommendation to use it, Easy Crypto and other services are far safer, easier and require less effort and understanding of basic crypto mechanics. When you trade P2P, it is your choice whether you and your trader do KYC.
Cryptocurrency NZ Final Verdict
Fundamentally, KYC is a useful tool used by crypto service providers to prevent fraud, verify their customers, prevent crime and enhance their broad analytical capabilities.
They are also legally obligated to do so to comply with NZ AML/KYC laws, or face penalty.
However KYC is also contrary to the original ethos of the Bitcoin network created back in 2008 by Satoshi Nakamoto who sought to restore financial equality and freedom to the world’s populations in the wake of gross mismanagement by legacy financial institutions.
You as an individual are solely responsible for your own decisions, and we hope you have found value in this Cryptocurrency NZ guide. Good luck, be safe, and god bless Satoshi.
