Although the widespread adoption of blockchain technology enables Web3 users to better control their personal data and supports direct interactions between different data, this decentralization also brings challenges regarding privacy protection, necessary information disclosure, and regulation. As blockchain technology takes root in the financial sector, its inherent anonymity provides opportunities for criminals and makes blockchain finance a breeding ground for "gray market" activities. Therefore, to better protect users' interests and ensure system security, it is crucial to establish on-chain identity verification while balancing regulatory requirements.
As is well known, KYC (Know Your Customer) is an important component of traditional finance's compliance with relevant securities laws and regulations as part of anti-money laundering measures. To protect companies from illegal operations, KYC generally requires businesses (such as cryptocurrency exchanges) to obtain personal information from anyone opening an account, such as a driver's license, passport, proof of residence, birth certificate, etc. This is similar to needing a government-issued ID when opening a bank account. With the advancement of technology, facial identification and biometric verification are now often required. These measures aim not only to ensure your and your funds' safety but also to assist criminal investigators in identifying illegal activities.
Similarly, in the Web3 world, identity verification procedures are crucial for establishing connections between anonymous digital wallet addresses and known criminals. Without this, illegal activities would be easily conducted, as all transactions are completely anonymous, making it difficult to trace the perpetrators. This would mean that Web3 could become a breeding ground for "evil" and an unregulated no-man's land.
For Web3, KYC is the necessary path to compliance and the trust bridge to the real world.
Firstly, KYC helps Web3 projects comply with international regulations, ensuring the legal operation of projects globally and maintaining the compliance of the Web3 ecosystem.
Secondly, KYC plays a crucial role in addressing various security crises in Web3. For instance, KYC can effectively prevent common cybersecurity threats such as Sybil attacks and phishing scams. Through strict identity verification, KYC ensures that only authenticated users can participate in specific activities and services, reducing the risk of malicious attackers infiltrating the system.
Moreover, for users, KYC can significantly reduce threats such as identity theft, providing a safer user environment. For Web3 projects, KYC-verified users mean higher security and credibility. This is especially important in DeFi projects, where the security of assets is paramount. Through KYC, project teams can ensure the real identities of participants, reducing the risks of money laundering and other illegal activities, thus better protecting project assets.