Independence from KYC?

Chris Dev

July 4, 2019

With all the 4th of July festivities, I thought it a good time to discuss another kind of Independence; The independence from KYC (or know your customer - a bank policy with regards to knowing the source of funds of their customers). Bitcoin was created as a response to what the creator determined was vast over reach by the banks and Governments. You can see this by the message that Satoshi chose to code into the genesis block, "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" and as mentioned in my last article, Satoshi's birthday was April 5 on his p2p foundation profile, which is the day that the infamous gold confiscation executive order was signed into law by then President Roosevelt. While here he was specifically pointing a finger at the bailouts and gold confiscation and not the ability to keep your financial matters private, is there anyone other than Craig Wright who truly believes that Satoshi would have been scared of regulators reactions to including financial privacy technology in the base layer of Bitcoin?

I don't think so. The only reason he didn't include it was because the ability to include it in a way that scales (as it does with Mimblewimble) didn't exist until 2016 when Tom Elvis Jedusor released the Mimblewimble white paper and it also took a number of break throughs leading to Jedusor putting it all together at that time. Given that this technology now exists, it seems only logical that we talk about how to incorporate it into Bitcoin itself, but only in the far future after it is tested thoroughly. Yes, it will be a major task and truly no one knows how the market participants will value a coin like this. Should Bitcoin one day hard fork in Mimblewimble, will this fork be another BCH? It could be, but as I have written about recently the reason BTC won out over BCH is not because BCH was a fork, it was because BTC had superior technology in Segwit and replace by fee and BCH had inferior technology and also because BCH was seen as an attempt to overthrow the Bitcoin core developers and replace them with yes men who would implement whatever the people behind BCH wanted. It's tempting to just say Bitcoin will never hard fork, but I think that's too simplistic a view. Bitcoin will continue to have hard forks (e.g. Bitcoin Gold, Bitcoin Diamond, Bitcoin Private, Bitcoin God, etc) and none of them will be successful (take on the majority of the monetary value of Bitcoin pre split) until they implement something that makes Bitcoin a better money than it is today. It also has to be something that can't be done outside the base layer.

So, back to the title of the article, how does Mimblewimble prevent banks from doing KYC on cryptocurrency related transactions? Well, it doesn't directly do that, but with exchanges teaming up to coordinate KYC efforts on Bitcoin and companies like Chainalysis coming to fruition, it is becoming evident that the strategy amongst banks and regulators is one to concede to Bitcoin's monetary policy, but also protect their interests by implementing KYC at the on/off ramps. Mimblewimble makes this impossible because all of the transactions would be mixed and no one would be able to determine the source of the funds going into and out of the on/off ramps. In reality, I don't see this as the long term future as eventually if Bitcoin is successful, it will be used directly in day to day transactions, but this is probably one of the stops along the way that the powers that be see us going. Breaking this on/off ramp monopoly may actually require something like Mimblewimble to make the on/off ramps understand that there's nothing they can do to decode the sources of funds.

The reason there is a plethora of "privacy coins" is because it is something that Bitcoin doesn't do well at the moment. While there are opt-in solutions for Bitcoin (like coinjoin and mixers), opt-in privacy is notorious for being ineffective because almost no users will take the time to implement it and to make matters worse, large corporations like Coinbase/Bitpay/etc will have an interest in not implementing it. There is a growing consensus that next major debate in the Bitcoin world will be about privacy and fungibility, which I see as a bug in Bitcoin. A quick glance at the options out there show that Mimblewimble is the clear favorite (Monero doesn't scale and Zcash is also opt-in), but it's in such an early state that it will take time to develop it so that it could potentially be developed to the point that it could be implemented. That's where MWC comes in and why Bitcoin holders should register for the free airdrop to Bitcoin holders. While my analysis is based on hard facts, even if I'm wrong, it makes sense for Bitcoin holders to register for their free MWC so that they can participate in any upside should the scenario I laid out come to fruition. Our registration is currently open and will be open until July 19 when we will take the snapshot. Please make sure to register before the deadline.