LocalBitcoins, a popular peer-to-peer bitcoin trading platform, is now complying with AML (Anti-money Laundering) and KYC (Know Your Customer) procedures, according to a post from April 17.
The new AML and KYC developments were brought to the public’s attention when a new thread emerged on Reddit. The original Reddit post featured a screenshot of Reddit user, YellowCuda’s experience of using LocalBitcoins.
The Finland-based cryptocurrency exchange is one of latest platforms now requiring AML/KYC procedures from their users as authorities crack down on regulatory compliance issues. There has been no official announcement from LocalBitcoins. So far it’s unclear if AML/KYC procedures will be rolled out to all users or only users that have traded a “significant [volume] in the past 12 months.”
Users Scramble to Find Alternative Methods to Trade Anonymously
Since most major cryptocurrency exchanges now require KYC, the ground appears to be shrinking for those who wish to trade anonymously. Users in the comment section of the Reddit thread are scrambling to find alternative options to LocalBitcoins. Although Reddit user brokenmusic mentioned “bisq.network and hodlhodl.com” still allow anonymous trading, it was also mentioned that both alternatives have some difficulties and inconvenience. Nevertheless, while both “have significantly less volume… that seems about to change.”
LocalBitcoins is one of the earliest peer-to-peer trading platforms, initially established in 2012. Bitsquare, which rebranded to Bisq in March 2017, held a liquidity week last month to improve growth of the platform while Hodl Hodl is relatively newer, launching its testnet in April 2017. A comparison of Hodl Hodl and LocalBitcoins is shown below:
— Beautyon (@Beautyon_) April 4, 2018
Although the cryptocurrency exchange has overcome certain obstacles, like Russia’s website block, their decision to undergo AML/KYC compliance may result in the large loss of many users, especially since the company’s unique value is the ability to trade anonymously. According to one user, ID is required even just to post an advertisement.
Reddit audiences appear extremely unhappy and concerned with the new situation. Reddit user Tasmanoide even commented, “RIP localBitcoins. Hi, another centralized exchange,” while user Bagtenfold mentioned that, “doesn’t [LocalBitcoin’s decision] kill the whole purpose of a censorship resistant currency?”
Many Welcome the New Compliance Procedures as it Prevents Criminal Activity
In contrast to the Reddit thread, many cryptocurrency enthusiasts see better regulations as a healthy change. There are valid benefits for businesses and customers. According Attorney Derron D. Woodfork’s Medium blog post “[businesses] must protect yourself from unwittingly facilitating money laundering, terrorism, and corrupt acts.” Without KYC compliance, exchanges or financial platforms may need to freeze user funds if there is ever a suspicion of funds coming from illegal sources. It can also protect customers from unknowingly trading with criminals.
The LocalBitcoins platform has facilitated criminal activity in the past. According to the Department of Justice, on May 25, 2017, a father a son syndicate pleaded guilty to money laundering on the platform. The court records indicated Michael Lord used the profile Internet151 to perform over 3,000 transactions related to money laundering and the distribution of narcotics.
“Cybercrime is an emerging area of criminal activity, and we want the criminals who hide behind logon names and internet aliases to know that IRS Special Agents will follow the money in whatever form, whether it be digital or paper currency,” said Jerome McDuffie, an IRS official.
LocalBitcoins’ recent decision to implement KYC/AML procedures may relieve pressure from the authorities. However, the sentiment toward the company has dropped since the announcement.