[2018-09-07] Crypto Exchange ShapeShift Sees Criticism for KYC Norms

[cybersofts]

Often lauded as a bastion of anonymity, financial independence and personal security, ShapeShift exchange has made a controversial move in the eyes of some users by introducing KYC (know your customer) guidelines which will require their users to register their real identities to use the service.

CEO Eric Vorhees published an announcement which was posted on Twitter describing ShapeShift membership as a loyalty program offering rewards such as discounts and higher transaction limits to users completing KYC.

    📰🦊ShapeShift has big news for our users! We are now offering a new membership program, that will provide users with more benefits & a better user experience. Find out why we are making these changes from our CEO @ErikVoorhees: https://t.co/LnOoyLbIMU pic.twitter.com/PiTk26xVkA

    — ShapeShift.io (@ShapeShift_io) September 4, 2018

Vorhees wrote:

    “Membership requires basic personal information to be collected. Today, Membership is optional, but it will become mandatory soon.

    Yes, that last detail sucks. 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.”

Vorhees states in the post that there are three reasons for the decision – an increase in users asking for account-based features, the relationship between tokenisation and accounts, and of course, regulation.

“The practice of requiring customers to hand over personal private information is one we’ve struggled with since inception,” he said. “To the extent that digital asset technology remains a legal grey area, we need to be prudent and thoughtful in our approach as we navigate the regulatory environment.”

The move has unfortunately been met with immediate criticism throughout the space, with prominent figure Andreas Antonopoulos voicing his disapproval:

    Very disappointed that @ShapeShift_io is implementing KYC.

    Just goes to show that any centralized entity will be pushed in that direction, which is why LN, atomic swaps and Decentralized Exchanges are the only way to resist surveillance economics.

    — Andreas M. Antonopoulos (@aantonop) September 5, 2018

Securities and defense litigation lawyer Jake Chervinsky posted an entire thread on Twitter discussing the matter, stating that regulators were silently invading crypto:

    0/ A few thoughts on @ShapeShift_io's decision to start collecting users' personal information through a mandatory membership program.

    In short, this is how regulators silently invade crypto.

    Thread.https://t.co/ygiGzraE8q

    — Jake Chervinsky (@jchervinsky) September 5, 2018

Chervinsky stated that ShapeShift has historically enabled users to trade with total anonymity, referring to CEO Eric Vorhees as  “a true bitcoiner who speaks passionately about financial privacy & separating money from state.”

The lawyer went on to point out that the US government wouldn’t stand for that separation, calling the concept of anonymous crypto exchanges a “genuine nightmare” for regulators relying on financial surveillance. Chervinsky believes that FinCen, a bureau of the US Treasury Department, has threatened ShapeShift with enforcement action.

In 2013, FinCEN issued guidance saying that all the regulations governing money services businesses apply in full to crypto companies, and offered an insight into the shadowy world of forced regulation.

    “Unfortunately, this is how regulation often gets done here in DC. Regulators accuse a company of violations based on a weak-but-plausible theory that might fail in court, but would be too expensive/risky/damaging for the company to fight in public, so the company cooperates.”

Users on Reddit didn’t take the news any better than those on Twitter, with comments such as “Shapeshift is dead to me,” “Shapeshift has lost its moral compass,” “So sad. Time to move on,” and “Goodbye forever!”

Shapeshift responded to one commenter asking if ShapeShift thought the users were stupid, referring them to a recent tweet by Eric Vorhees which simply said:

    What I write is being watched very closely. Please give us time.

    — Erik Voorhees (@ErikVoorhees) September 4, 2018


Source: https://www.ccn.com/crypto-exchange-shapeshift-sees-criticism-for-mandating-memberships-with-kyc-norms/

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[audaciousbeing]

Vorhees wrote:

    “Membership requires basic personal information to be collected. Today, Membership is optional, but it will become mandatory soon.

No one should be surprised by this that its what will happen eventually. Any business that will still want to stay relevant in the crypto world, will have to either fall in line or stop its services because it will soon be swimming in the pool of fines while the directors are looking at jail times that their lawyers will even advise them to accept plea bargain to get a reduce sentence. Thats how far and powerful the institution called government is.

   Yes, that last detail sucks. 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.”

Vorhees states in the post that there are three reasons for the decision – an increase in users asking for account-based features, the relationship between tokenisation and accounts, and of course, regulation.

“The practice of requiring customers to hand over personal private information is one we’ve struggled with since inception,” he said. “To the extent that digital asset technology remains a legal grey area, we need to be prudent and thoughtful in our approach as we navigate the regulatory environment.”

Everything in this section is a mere looking for excuse to justify the shift in what they initially hold so dear and that the new position not to look so bad. The promise of more benefit as a member is just to add some compensation and to serve as motivation for people to adapt to the new system.

The move has unfortunately been met with immediate criticism throughout the space, with prominent figure Andreas Antonopoulos voicing his disapproval:

    Very disappointed that @ShapeShift_io is implementing KYC.

    Just goes to show that any centralized entity will be pushed in that direction, which is why LN, atomic swaps and Decentralized Exchanges are the only way to resist surveillance economics.

    — Andreas M. Antonopoulos (@aantonop) September 5, 2018

Securities and defense litigation lawyer Jake Chervinsky posted an entire thread on Twitter discussing the matter, stating that regulators were silently invading crypto:

    0/ A few thoughts on @ShapeShift_io's decision to start collecting users' personal information through a mandatory membership program.

    In short, this is how regulators silently invade crypto.

    Thread.https://t.co/ygiGzraE8q

    — Jake Chervinsky (@jchervinsky) September 5, 2018

Chervinsky stated that ShapeShift has historically enabled users to trade with total anonymity, referring to CEO Eric Vorhees as  “a true bitcoiner who speaks passionately about financial privacy & separating money from state.”

The lawyer went on to point out that the US government wouldn’t stand for that separation, calling the concept of anonymous crypto exchanges a “genuine nightmare” for regulators relying on financial surveillance. Chervinsky believes that FinCen, a bureau of the US Treasury Department, has threatened ShapeShift with enforcement action.

In 2013, FinCEN issued guidance saying that all the regulations governing money services businesses apply in full to crypto companies, and offered an insight into the shadowy world of forced regulation.

    “Unfortunately, this is how regulation often gets done here in DC. Regulators accuse a company of violations based on a weak-but-plausible theory that might fail in court, but would be too expensive/risky/damaging for the company to fight in public, so the company cooperates.”

Users on Reddit didn’t take the news any better than those on Twitter, with comments such as “Shapeshift is dead to me,” “Shapeshift has lost its moral compass,” “So sad. Time to move on,” and “Goodbye forever!”

Shapeshift responded to one commenter asking if ShapeShift thought the users were stupid, referring them to a recent tweet by Eric Vorhees which simply said:

    What I write is being watched very closely. Please give us time.

    — Erik Voorhees (@ErikVoorhees) September 4, 2018


Source: https://www.ccn.com/crypto-exchange-shapeshift-sees-criticism-for-mandating-memberships-with-kyc-norms/

There is nothing anybody can do about it. Eventually, if you cannot comply with their new rule, its better to avoid using their service because the mandatory statement means its going to be enforced. Apparently, when your dream or project gets to certain point, every believe, view and philosophy you hold dear are just temporary.

[cybersofts]

Vorhees wrote:

    “Membership requires basic personal information to be collected. Today, Membership is optional, but it will become mandatory soon.

No one should be surprised by this that its what will happen eventually. Any business that will still want to stay relevant in the crypto world, will have to either fall in line or stop its services because it will soon be swimming in the pool of fines while the directors are looking at jail times that their lawyers will even advise them to accept plea bargain to get a reduce sentence. Thats how far and powerful the institution called government is.

The governments are finally forcing cryptocurrency exchanges to comply with their needs if not then face certain charges. where is our freedom then? the decentralized world with full privacy that we know it is becoming more centralized than ever, as people were asked to give out their personal information on exchanges today in order to perform certain operations.  

[milewilda]

Vorhees wrote:

    “Membership requires basic personal information to be collected. Today, Membership is optional, but it will become mandatory soon.

No one should be surprised by this that its what will happen eventually. Any business that will still want to stay relevant in the crypto world, will have to either fall in line or stop its services because it will soon be swimming in the pool of fines while the directors are looking at jail times that their lawyers will even advise them to accept plea bargain to get a reduce sentence. Thats how far and powerful the institution called government is.

The governments are finally forcing cryptocurrency exchanges to comply with their needs if not then face certain charges. why is our freedom then? the decentralized world with full privacy that we know it is becoming more centralized than ever, as people were asked to give out their personal information on exchanges today in order to perform certain operations.  

Sooner or later those exchangers who dont really have any licenses or doesnt abide with government rules or laws will definitely come to a point on where they would really be asked out and we already seen gradually changes on some exchangers as the years goes by and as being said it isnt really surprising which in our part that who do mean about full anonymity will really got pissed or dismayed on this way because cryptos wont really be needed to be regulated or handles just like on our usual system which is fully in the hands of the government.

[Irvinn]

Many exchangers under the pressure of states, and above all, such as the US, will surrender and will introduce mandatory collection of confidential information about their customers. States do not want to lose control over the movements of cash flows, this is actually a manifestation of power. Whoever controls money has power. However, in the world there have always been islands of financial freedom, called offshore zones. Apparently, it is in offshore zones there will be decentralized exchangers in which there will be no need to leave any of their data and such exchangers will be very popular.

[Slow death]

But why are governments only giving priority to kyc and not asking that all exchange have a physical office? where do these people leave our documents if these exchange has no license and no physical office? I mean the owner of the exchange may be anonymous, but the people who use the exchange should not be anonymous? Does that make sense? Someone already saw these exchange: http://bestchange.com, they also ask for KYC, but they do not have a license, they are anonymous. this KYC becomes very unfair and dangerous

[bbc.reporter]

Vorhees wrote:

    “Membership requires basic personal information to be collected. Today, Membership is optional, but it will become mandatory soon.

No one should be surprised by this that its what will happen eventually. Any business that will still want to stay relevant in the crypto world, will have to either fall in line or stop its services because it will soon be swimming in the pool of fines while the directors are looking at jail times that their lawyers will even advise them to accept plea bargain to get a reduce sentence. Thats how far and powerful the institution called government is.

The governments are finally forcing cryptocurrency exchanges to comply with their needs if not then face certain charges. where is our freedom then? the decentralized world with full privacy that we know it is becoming more centralized than ever, as people were asked to give out their personal information on exchanges today in order to perform certain operations.  

Your freedom? What of their freedom? Shapeshift made a very hard decision to do something that was against their original vision to avoid going to prison. I reckon if you were businessman who was thrown in a similar situation, you too would do what Shapeshift did.

It was your freedom or save the business. A very easy decision for Erik Vorhees, I reckon hehehe.

[TraderTimm]

Voorhees is a bad actor.

He founded a company that was exposed in the Panama Papers release -- he said it was just something he wasn't going to "do anything with anyway". Funny, usually if someone uses shady lawyers to setup a shell company it isn't for the hell of it. But this is part of his pattern.

He backed the S2X and NYA backroom deals to stall Segwit.

He aligned himself with Roger Ver and his BCash usurping attempt.

He even was fined by the SEC for a previous investor scheme.

His operational pattern is to exploit something, regardless of ethics and law, and then when discovered - backpedal and shift the narrative.

The only reason he's doing this is to cover his own slimy ass, he doesn't give two shits about anything else -- except making profits at all costs.

Fuck this fucking guy.

[estenity]

But why are governments only giving priority to kyc and not asking that all exchange have a physical office? where do these people leave our documents if these exchange has no license and no physical office? I mean the owner of the exchange may be anonymous, but the people who use the exchange should not be anonymous? Does that make sense?

good point IMHO

[squatter]

Often lauded as a bastion of anonymity, financial independence and personal security, ShapeShift exchange has made a controversial move in the eyes of some users by introducing KYC (know your customer) guidelines which will require their users to register their real identities to use the service.

Anonymity? They obviously log IP addresses, browser and session information, etc. They blacklist coins and work with law enforcement. I figured this day would come. FinCEN probably threatened them with an enforcement action.

CEO Eric Vorhees published an announcement which was posted on Twitter describing ShapeShift membership as a loyalty program offering rewards such as discounts and higher transaction limits to users completing KYC.

More like disguising it as a loyalty program. That's cute.

Andreas hit the nail on the head here:

   Just goes to show that any centralized entity will be pushed in that direction, which is why LN, atomic swaps and Decentralized Exchanges are the only way to resist surveillance economics.
    — Andreas M. Antonopoulos (@aantonop) September 5, 2018

[Samarkand]

...
Andreas hit the nail on the head here:

   Just goes to show that any centralized entity will be pushed in that direction, which is why LN, atomic swaps and Decentralized Exchanges are the only way to resist surveillance economics.
    — Andreas M. Antonopoulos (@aantonop) September 5, 2018

The problem is that it is hard to get people to actually switch to
solutions like atomic swaps or Decentralized Exchanges. Most people
are not particularly interested in anonymity and privacy. Just take at the
look at the number of people, who willingly provide all kinds of information to
Facebook.

This meme describes the carelessness that most people have with regards
to sensitive data today pretty well 




The real question is how can we incentivize people to actually
use Decentralized Exchanges instead of places like Coinbase or Shapeshift
that cooperate with authorities and enforce KYC.

[squatter]

The real question is how can we incentivize people to actually
use Decentralized Exchanges instead of places like Coinbase or Shapeshift
that cooperate with authorities and enforce KYC.

Sadly, it's the type of thing where people will keep doing it until they have a compelling reason not to. They're convenient and easy to use, and the alternatives are anything but. People often don't understand the incentives to avoid centralized exchanges until it's too late.

It's scary how much personal data these exchanges have on people -- their withdrawal logs combined with KYC is a treasure trove for police agencies. Sometimes I wonder if BitPay is a honeypot. The truth is that any centralized entity large enough to get the US government's attention is liable to give up their database at the drop of a dime when the time comes.

[Godex_io]

If you are looking for an exchanger that keeps its users anonymous without requiring any personal data from them, try Godex.io. No KYC, no volume limits. We use non-custodial model of exchange with no registration required. Thanks!   

[1Referee]

It's scary how much personal data these exchanges have on people -- their withdrawal logs combined with KYC is a treasure trove for police agencies.

It's not scary at all. People sign up for that so they have to swallow all of it.

It's not at all surprising since we're dealing with a more than convenient means of exchange. Not expecting governments to firmly regulate the centralized ecosystem around Bitcoin and crypto is just foolish. In the end, governments are doing Bitcoin a favor by regulating the centralized ecosystem around it. All it does is stumulate decentralized platforms and economies to emerge for the benefit of everyone valuing freedom.

Bitcoin is our weapon to end what we allowed governments to start. The only thing we have to do is stimulate the decentralized revolution.

[aso118]

Wallets like Coinomi used to offer the option of switching between different altcoins. I think the underlying engine behind this was Shapeshift. This was popular, in spite of the high fees. I wonder if these options would now be removed, given the change in Know Your Customer norms of Shapeshift.

[BitHodler]

Wallets like Coinomi used to offer the option of switching between different altcoins. I think the underlying engine behind this was Shapeshift. This was popular, in spite of the high fees. I wonder if these options would now be removed, given the change in Know Your Customer norms of Shapeshift.

Coinomi uses Shapeshift and Changelly, but most people used the aforementioned with how it was more popular and Changelly had some scam accusations going against them for a while.

I used Shapeshift through Coinomi to cash out both Bcash and Bgold after they forked off. Their private key sweeping option of a huge load of shitcoins is pretty neat with how you don't have to install any actual clients yourself.

I don't think Shapeshift will be removed since they will probably offer some way to connect your account to that exchanging service for more convenience. Without these exchanging services Coinomi is pretty obsolete.

[audaciousbeing]

Wallets like Coinomi used to offer the option of switching between different altcoins. I think the underlying engine behind this was Shapeshift. This was popular, in spite of the high fees. I wonder if these options would now be removed, given the change in Know Your Customer norms of Shapeshift.

Coinomi would eventually change their position in this. Its either they ensure that they implement their on KYC in other to align with Shapeshift's new found ideology or they remove the option all together but really I don't see this as a challenge because from the option on Coinomi which give room to buy directly with your ATM cards, by default you will have to put the details of your card linked to your bank account which is then linked to all of your bank accounts and details. I wonder what KYC could be deeper than that of the banks.

It's scary how much personal data these exchanges have on people -- their withdrawal logs combined with KYC is a treasure trove for police agencies.

It's not scary at all. People sign up for that so they have to swallow all of it.

Exactly my point, they are on their own before you choose to do business with them which put them in the position of strength in this equation. Its either you comply of you move elsewhere. This might take a turn on their inflow in the short run but they will stabilize because the ideologies of those involved in crypto has been neutralized from those who value so much about their privacy and those who care less about that but the income is paramount to them.