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The &#34;modern-day&#34; cryptocurrency ecosystem is beginning to divert from the decentralization standing originally associated with it—as a consequence of recent developments related to blockchain identifications and KYC, which people believe are doing good but are instead doing otherwise.The concept of KYC was developed to protect both individual and institutional investors in the cryptocurrency market because the entire blockchain industry has seen a massive wave of new coins flood the market, starting with the ICO craze of 2017. There are now tens of thousands of cryptocurrencies and digital assets—some of which were developed only to disappear with investors&#39; funds.There have been several instances where people’s investments have been lost to scam or &#34;rug pull&#34; projects, and unfortunately, there are still many more projects that are already preparing to defraud their investors; thus, this is where verification comes into play in the crypto industry, and knowing who is behind certain blockchain projects and who to prosecute when anything goes wrong is what KYC provides.But is it really functioning as everyone expected? This is a very critical question that nobody, not even blockchain project developers, has publicly asked or offered a thoughtful answer to. Before we get into the serious issues that this so-called KYC mechanism raises, let&#39;s briefly take a look at the history of the entire market.<h2 id="header-0">A Brief History of the Cryptoverse</h2>The journey started in late 2008, when Satoshi Nakamoto published Bitcoin’s whitepaper on the internet, with the title &#34;Bitcoin: A Peer-to-Peer Electronic Cash System,&#34; showcasing how the world could start using technology that allows them to carry out transactions independently of a middleman.Satoshi described Bitcoin as &#34;a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.&#34;He further stated that &#34;what is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.&#34;Following the creation of Bitcoin, a number of cryptocurrency projects popped up, each with its own &#34;unique&#34; core features and the issue they were meant to address. Many other cryptocurrencies, such as XRP, Dogecoin, and Ethereum, followed Litecoin–the second cryptocurrency to be created.Moreover, after 2017, as the potential of cryptocurrencies and their underlying technology—blockchain—became widely recognized, modern decentralized finance took off. In addition to transferring money between bank accounts, developers wanted to give cryptocurrency users more options for using their finances. As a result, numerous decentralized platforms and applications emerged.<h2 id="header-1">So, What’s the Catch?</h2>The somewhat uncontrollable growth of Defi led consumers and some regulators to consider protecting common crypto users by recognizing the developers behind projects—through KYC badges, provided by some independent companies, whose employees, or rather, their so-called KYC experts, who are expected to interview (through a video call) and obtain sensitive documents from project developers, usually remain anonymous themselves.Indisputably, project developers will increase the security of regular cryptocurrency users and ensure the long-term success of the industry by obtaining KYC badges or doxxing themselves. There is a catch, however, as the absurd black market of paid identity is now pervasive, in addition to the fact that many KYC badge providers operate anonymously and without a regulated method of retaining users&#39; data.The crypto industry&#39;s KYC badge market has significantly expanded to accommodate providers who take the form of &#34;black market players,&#34; similar to how they are in many other businesses. Nowadays, people view the highly sensitive KYC business as a means of making extra money for themselves rather than as a means of preventing Defi users from becoming victims of fraud—by identifying &#34;who builds what.&#34;However, we believe that in a few years, more reliable and efficient technologies in the Defi space will be developed that will not rely on the currently prevalent, improperly regulated human or centralized KYC badge providers, allowing Defi projects or team members to be duly verified and trusted with people&#39;s funds.This is due to the fact that, given the current situation, centralized companies and exchanges dominate the blockchain space, and Defi projects that should maintain the privacy and decentralized structure of the industry are frequently obstructed by so-called KYC providers—typically unidentified individuals who may ultimately sell people&#39;s sensitive documents or use them to commit fraud in any part of the world.KYC data collection may jeopardize the anonymity of the cryptocurrency space, especially for those developing projects to solve problems. Regardless, this does not imply that Defi projects or cryptocurrency exchanges ought to be resistant to KYC verification, as this would be required to ensure both user security and the general security of the blockchain and cryptocurrency market in the long term. We only need more strategies and technologies that ensure the security of user funds while also maintaining the level of confidentiality required by the market.In fact, the primary goal of the world&#39;s first cryptocurrency, Bitcoin (BTC), which was developed by a person who wished to remain completely anonymous, was to prevent centralized organizations, governments, and financial institutions from meddling in people&#39;s everyday transactions. This was successfully accomplished up until the KYC model was recently implemented, which caused the industry to return to a centralized structure and rendered obsolete the core principles of blockchain technology pushed forward by Satoshi Nakamoto.By now, we should all be aware that the KYC badge does not even completely resolve the issues in the cryptocurrency space, especially as demonstrated by the collapse of several well-known and fully doxxed cryptocurrency entities in 2022. A prominent figure in the crypto sector, Terraform Labs&#39; co-founder Do Kwon disappeared with more than $40 billion in investor funds after his projects crashed to zero in May, yet nothing has happened. Did his identity prevent the crisis? Absolutely no.The most recent one is the FTX case and its sister company, Alameda Research, which were widely regarded as among the most prominent cryptocurrency firms worldwide—yet they wiped out billions of dollars in user funds in a matter of hours.<h2 id="header-2">Closing Thoughts</h2>The long-term success of the cryptocurrency and web3 industries will be further protected if project developers and all other market players strive to maintain the truly decentralized structure of the cryptocurrency industry rather than making it belong to a few centralized organizations or exchanges. There are many strategies yet to be developed that might ultimately flush the bad market players away from the industry while also ensuring the privacy, decentralization, and financial freedom the world needs.

Does KYC Address Any DeFi Issues, or Just A New Attempt to Centralize it?

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