Know Your Customer (KYC) or Know Your Client is a set of standards implemented to verify the identity of potential clients, business partners, and suppliers. KYC standards were developed for companies and financial institutions to mitigate financial risk and to comply with legal obligations related to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) statutes. The primary rationale for KYC standards is the avoidance of Guilt by Association and the financial, reputational, and legal consequences it entails.
Knowing your customer may be harder than it seems. Customer Identification Programs (CIP) designed to identify the ultimate beneficiary of a given transaction are often one step behind the shell companies, tax havens, and loopholes engineered to evade them. Since their mass adoption, KYC databases have also become prime targets for illicit actors who traffic in stolen identities.
Initially conceived as a store of value unfettered by state-controlled financial systems, cryptocurrencies introduced an anonymous distributed network beyond the reach of AML and CFT requirements spawned by the 2007-08 Global Financial Crisis and the 21st century Global War on Terrorism. With the rise of user-friendly crypto exchanges in response to the popularisation of crypto speculation and trading, the implementation of KYC standards to counter the anonymity and jurisdictional limitations inherent to decentralised digital currencies has fallen to these platforms. These regulatory adaptations have themselves fueled the rise of privacy-oriented cryptocurrencies and products that are engineered to conceal transaction amounts, associated addresses, and other information that might be used to identify users.
Marrying the techno-libertarian rhetoric of Silicon Valley and the corporatist ‘network state’ model of governance, Worldcoin (WLD) presents its own proposition for KYC identification and verification. Leveraging the immutability of blockchains, Worldcoin aims to use biometric verification to guarantee unique human users: registration involves scanning a user’s iris using a reflective imaging device called the “orb” and linking this information to the Worldcoin wallet. The Worldcoin Foundation aspires to replace all government-issued fiat currencies with the WLD cryptocurrency and all national identification registries with their World ID.
As with other attempts to introduce KYC standards, however, black markets emerge in the long shadows cast by governments, financial institutions, and corporate giants. In many Worldcoin test markets, often low-income countries across the global south, users are paid in cash by third-party brokers to register for the service, so that their wallet and World ID may be sold to users in restricted markets. In China, which has banned all forms of cryptocurrency in an attempt to prevent money laundering and capital flight, a World ID with full KYC certification can be purchased on Taobao for RMB 499 (approximately 70 USD). Any attempt to Know Your Customer only introduces new systems for (mis)identification. In today’s privacy landscape, anonymity is best achieved by inhabiting the biometrically-verified digital body of another.