KYC in Mining Is Inevitable – It’s Also a Net Good

Few acronyms are prone to spark greater debate in crypto than these three: KYC. To its opponents, Know Your Customer regulation is the antithesis of everything web3 stands for. To its proponents, it’s the inevitable price of progress and a requisite for mass adoption to occur.

Over the past decade, we’ve grown accustomed to KYC becoming the norm in order to access centralized exchanges and other crypto platforms that intersect with fiat rails – or simply fall into the crosshairs of regulators due to the number and origin of the users they serve. KYC is now normalized for accessing the majority of the industry’s centralized infrastructure.

But enforcing KYC in the crypto mining industry is a thornier issue. On the one hand, it’s a logical and perhaps inevitable step given the need for miners to cash out into fiat. In this context, mining through centralized pools is no different to trading on a centralized exchange. It’s human nature to resist change, however, and shaking up an industry that has thrived on anonymity for well over a decade is bound to invite some pushback. Wide scale KYC in mining is inevitable however – and its passage will prove a net good that elevates the industry to new heights.

Regulators Gonna Regulate

The days when mining was the preserve of solo operators, running a GPU in their basement or a cluster of ASICs in their garage, are long gone. While solo miners still exist, they’ve largely been supplanted by professional operators running farms stacked floor to rafter with overclocked hardware dedicated to squeezing every last drop of value out of mining BTC and a few other PoW cryptos.

Such operators are already registered as crypto mining businesses in the region where they ply their trade and so KYC is no biggie to them: they’ve got nothing to hide. But while the commoditization of mining has transformed the industry, it hasn’t squeezed out solo miners altogether – it still retains a subset of hardcore miners intent on hanging onto their right to mint fresh coins while retaining their pseudonymity. Their hesitance to come in from the cold and complete verification is understandable, but their fears of what it could herald are overblown.

In the last five years, every major crypto exchange has introduced KYC and there have been no major repercussions: no critical database breaches, no punitive enforcement action against CEX traders, and no credible reports of draconian crackdowns by tax agencies harvesting exchange data. In short, everything has continued pretty much as it was before. There’s no reason to expect the KYC-ification of the mining industry to play out any differently.

How Compliance Will Elevate Crypto Mining

To dismiss KYC as little more than a means of verifying the identity of crypto miners is to miss the bigger picture. Yes, it will enable mining pools, hashpower marketplaces, and ASICs suppliers to maintain compliance while catering to a global clientele. But more importantly, it will elevate the entire industry, allowing the entry of bigger players with commensurate capital.

Just as the Bitcoin ETF, which has unarguably raised digital asset prices and accelerated institutional adoption, wouldn’t have been possible without exchanges implementing KYC, the same holds true of the mining sector. Mining operators who know their customers are also better positioned to offer enhanced products that will expand the range of financial opportunities available to miners.

Hashrate futures; leveraged mining contracts; mining derivatives; insurance; prediction markets: you name it, it’s all possible in an industry that falls in line with other centralized sectors such as exchanges and custodians. Up until now, mining has flown largely under the radar and escaped enforcement action from regulators. Implementing KYC before it’s mandated from the top down will keep the three-letter agencies at bay while allowing professionals to enter the game. And not just pro mining operations, but custodians, hashrate exchanges, brokers, and infrastructure providers.

KYC Will Always Be Opt In

The day is fast approaching when all of the leading mining platforms will implement KYC. It will start as a trickle but rapidly become a torrent until, just like the CEX landscape, the only platforms holding out will be a handful of shady offshore operators. Users who wish to keep mining through their current mining pool will be obliged to comply with this obligation – but that doesn’t signal the end of mining anonymity altogether.

Solo miners who wish to continue doing their thing without going through formal channels will be able to. Just as DEXs allow anyone to trade pseudonymously, mining without KYC will always be possible. But on the whole, the move to a compliant framework will be tolerated by most and welcomed by many. It’s not a question of if this shift occurs but when. Once complete, the core business of mining will remain unchanged. But the opportunities available within the industry will massively expand. With new legitimacy comes new opportunities.