Op-Ed: KYC and Stringent Regulations Frustrate New Crypto Entrants

The following opinion piece on crypto regulations was written by Benjamin Pirus, a crypto trader who has written many articles for different ICOs, crypto news outlets, and clients.

Government protection and regulations may provide reasons for thankfulness. But that doesn’t mean there aren’t significant frustrations and need for change in the current system. Regulation leads to normal citizens being inhibited or even put at risk in many ways. Definite need for change exists in two particular areas: the current United States accredited investor laws, and current overall KYC expectations.


With tokenized securities just around the corner, as well as recent ICO regulation, the U.S. accredited investor law has been the topic of much discussion. Under current laws, Initial Public Offerings (IPOs), as well as many ICOs, ban U.S. citizens from investing unless they are deemed to be certified accredited investors.

Accredited Investor Difficulties
According to the Securities and Exchange Commission (SEC), an accredited investor is described as anyone who has “earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)”.

The above described law prevents a significant portion of the United States from investing. This is extremely frustrating because there are often many people with more than enough knowledge to invest but are barred from participation. Just because someone has significant money, doesn’t mean they know how to properly handle it.

In a recent interview, Desico (tokenized securities) co-founder and CEO Laimonas Noreika explained that “there are significant amounts of accredited investors who lack expertise in areas, but still have enough money to achieve accreditation. On the opposite side, millions of people do not have enough money for accreditation, but have more than enough knowledge to decide where and why they want to invest. We want to see both of these groups included.”

The Frustration
This is unendingly frustrating for educated individuals who see opportunity but are not legally allowed to capitalize on it. This also hurts companies and ICOs, as many are prohibited from initial involvement. Most are forced to invest once significant gains have already been made.

Anthony Pompliano (founder and partner at Morgan Creek Digital) talks about how it has literally been written into law that “rich people get richer”… “the highest returning assets that are available to any investor, are only going to be available to people who have a certain financial status”… “to me, it’s a violation of the American dream”.

Interesting Solution
Pompliano then goes on to describe an interesting solution that’s found in Europe – the “opt-in system”, which essentially allows individuals to claim their capability, but also acknowledge their understanding of the risks associated, and are therefore willing to receive less investor protection. Basically, it lets the investor account for his or her own decisions and actions. This system seems like a much better solution.

KYC Laws Put Participants at Risk
It’s not just the accredited investor law that’s frustrating here though. Know Your Customer (KYC) and Anti Money Laundering (AML) laws in general are not only frustrating, but also put participants at risk. KYC/AML basically includes that customers must verify their identities, as well as “confirm they’re not on any prohibited lists and assessing their risk factors”.

Why is this harmful? Because it can be a one-way street. For example, people often must send their license, social security number, picture, etc., in order to partake in services, such as certain regulated crypto exchanges.

But what assurance does the customer have that their personal information is safe with said entity? Or even that they are not sending their private information to a scam artist? This is frustrating, as the customer must decide either to incur such risk or walk away from an opportunity.

Even if the the company requesting KYC is legitimate, the customer’s private information may be at risk, depending on how the contents are uploaded or delivered. And this again, is only a risk to the customer if their data is apprehended.

Banning Crypto Investment Participation
Many crypto exchanges even ban US participation, possibly because they do not want to have to deal with the KYC and regulation laws associated. This is difficult for the U.S. customer who desires to abide by the rules (without using a VPN) but is simply forced to look for other, less adequate, options.

These rules are valid in some ways. It’s important to ensure that money isn’t funding terrorism or illegal activity. And, of course, national protection is extremely important. But, citizens’ information and opportunity must also be protected.

So what’s the solution? There may be many solutions. True protection for citizens being acknowledged may be seen in self-sovereign identity and smart contracts. For example, if KYC is required in the future, perhaps citizens should be able to simply sign a smart contract with their private keys, in order to verify their private information, without exposing them to risk. This would satisfy both individuals and government parties.

Whatever the solutions may be for accredited investor laws, and KYC, people would likely benefit from reform in these areas.

What do you think about Securities, KYC, and AML laws in the crypto space? Are these laws even necessary?