Tezos announced last week that it will be requiring all ICO participants to submit to a full KYC check. This announcement was met with shock, surprise, and disgust as the ICO for Tezos ended almost one year ago. The Tezos project has been mired in controversy and lawsuits ever since its early days and has still not launched its main net or test net product. This announcement could damage the already beleaguered reputation of this once promising cryptocurrency project.
What is Tezos?
Tezos is in many ways an Ethereum competitor. It plans to offer smart contracts and support for decentralized applications. The system will be run on a proof-of-stake model in which the Tezos Foundation claims on its official website that “stakeholders govern the protocol”.
The company held an ICO for its Tezos coins back in July 2017. This ICO was an incredible success and brought in over $250 million worth of Bitcoin and Ethereum. Shortly after the ICO ended, the problems quickly began to appear one after another.
While the saga is just too complicated to go over here, some of the major events include lawsuits, leaders stepping down or being replaced, fines, accusations of engaging in securities fraud, and a delayed main net launch that has set many into a rage of impatience.
According to an article that appeared on Coin Telegraph back in February of this year, one of the co-founders of Tezos had promised she would “go rogue” and launch the platform regardless of ongoing lawsuits. This does not appear to have happened as the official website only includes information about a test net launch which itself has not happened yet.
All Your KYC Are Belong to Us
One of the major reasons why investors are attracted to ICOs is because participation used to be anonymous. One could contribute to an ICO and receive tokens shortly after, all without the need to go through a tedious or costly know your customer procedure. Many ICOs in the past only required that participants check a single box that states they are not American or a US resident.
Read our guide to Money Laundering: Worldwide Regulations
That all changed when the US SEC started to step up their rhetoric in reference to ICOs.
Now it is becoming standard practice for most US-based or US resident welcoming ICOs to require identity documents to be submitted and verified before being allowed to participate. Some ICOs are even going so far as to require accredited investor status for all participants regardless of residency or citizenship. This is because there are fewer SEC regulations that are application to accredited-only investments.
What’s significant about what Tezos is doing is that they are asking for these documents almost a year after their ICO completed.
Ethereum co-creator Vitalik Buterin also sounded off on the Tezos official Twitter post.
This seems backwards. Why can't third parties just run a script to scan the BTC/ETH blockchains, see how much everyone contributed, calculate how much XTZ everyone should get, and generate the genesis block without Tezos Co involvement?
That's how the Ethereum launch worked.
— vitalik.eth (@VitalikButerin) June 11, 2018
Buterin aside, the community responses to the announcement were largely negative. Many users appeared frustrated with the endless delays and drama, and now asking for identification documents for all investors nearly a year later seems patently ridiculous to many of them.
And do US Citizens get excluded by this KYC or what? The #1 question and you can’t give an answer?
— Charles Douthat (@creiddouthat) June 10, 2018
A number of US-based investors are running out of patience waiting for Tezos to comment on whether or not they will be retroactively excluded. Tezos does not appear to have responded to any concerns of this type, with comments coming in just a few hours before press time that echo this same concern.
Others seem frustrated with the endless scandals and issues that Tezos has faced.
Will Other Completed ICO’s Do the Same?
What’s yet to be seen is if other ICO projects that want to stay within the confines of ever evolving laws will also perform similar demands for KYC data after the fact.
Due to the way cryptocurrency is designed to function, if a project has already launched, or coins or tokens have already been distributed, then even if they were to make such a demand, they would likely be ignored. Tezos is in an interesting position because it still appears to be nowhere near a formal launch. That, and the formal Tezos coins have still not been released. Therefore it would seem that the foundation can essentially hold the coins at ransom until investors comply.
Quite likely, we will see more projects demanding identification upfront, and we should take this into consideration before deciding to get involved in the project. However, Tezos suddenly demanding identification after the fact just seems like a dirty trick and something that the community will not likely forgive very easily. Perhaps only the hardest of the hard-core believers will be able to say that there’s nothing wrong with this action.