Newcomers to the cryptocurrency space may feel safe keeping their digital assets on exchanges without a second thought. This is because they haven’t been subjected to the “punch in the mouth” that many seasoned investors have felt at some point in time from exchange hacks (Mt.Gox, Cryptopia etc.)
Other than exchange hacks, it is known that some exchanges sell users data and KYC details on, as seen in recent times where customers KYC details were being sold on the dark web. Bitmex recently sent out emails but accidently added users’ email addresses publicly, tarnishing their reputation (even more).
The transition to decentralized exchanges has been a slow one and is still not in full swing, due to the glitchy user experience, low-liquidity and complicated nature of early Dexes.
With more DeFi activities being introduced that can be directly utilized from a hardware wallet, Dexes could really take a larger market size percentage with these next wave of DeFi products. Coupled with a lack of KYC requirements and a direct Peer to peer experience, it allows us to interact with cryptocurrency the way it was envisioned in the beginning.
Decentralized KYC (Know Your Customer)
KYC is the act of submitting personal identification details, usually with a selfie next to your passport. Usually your email address and sometimes, payment details are stored on the platform which requires your KYC too, so if all of these details were to get into the wrong hands, you could become a victim of identity theft. Hackers or the malicious party could use this data to get loans in your name and gain access to all of your accounts.
Solutions are being worked on to decentralize this process, keeping personal details in your own hands but allowing a process of proof of identity on a distributed ledger, so one would just need to authenticate via the API without sharing the sensitive data.