Tezos Refusing To Relinquish Funds Unless Customers Reveal Their Identities

Conor Maloney

June 17, 2018

TEZOS wants to DOX you

Tezos, a much-anticipated smart-contracts platform aiming to rival Ethereum with added features such as self-governance, is holding user contributions to the ICO hostage pending completion of KYC (Know Your Customer) submissions which were not required at the time of the ICO.

US regulators have tightened their grip on ICO regulation over the past year, and it’s likely that Tezos are legally obliged to comply, but to many investors and observers, the new development is a huge security concern. Privacy is highly-valued in the crypto-space full of people seeking to avoid the stringent regulations and limitations of the traditional banking system while at the same time constantly navigating the phishing scams and other security risks the crypto-space is plagued with.

The idea of essentially DOXing themselves is so unacceptable to many would-be Tezos users that a hard fork has been announced that will split the currency and project in two, allowing those who refuse to comply with US regulations to step aside and use the tech for their own standalone project.

Let’s take a look at what Tezos is, why the regulations are coming into place, and what the hard fork will mean for the community.


The project itself sounds promising, a smart-contracts platform based on the delegated proof of stake method of consensus, meaning the platform is self-governed. Investors with a stake in Tezos can vote on the future direction of the project, deciding whether or not to adopt things like privacy features, customizing smart-contract features, etc.

The project runs on a native programming language called Michelson, and the ICO raised a whopping $232 million last year. The ICO ran for 20 days with no cap, which made the fundraising goals unclear, and the project is not alone in trying to take on Ethereum – NEO, Quantum, and EOS are all new projects with a similar vision to compete. Because Ethereum is an open-source project, others have the option to try and improve on the existing system.

Why The Surprise KYC?

It’s fair to say that this wasn’t Tezos’ idea of a good time.

The US has been cracking down on ICOs in a big way, issuing subpoenas to over 80 cryptocurrency firms and stating that many ICOs will even be classed as securities which will require exchanges to complete special registration and possibly result in investors needing to return tokens, projects being shut down, and even criminal charges for founders and investors (although the latter seems unlikely to be put into practice).

Tezos was one of the many ICOs that chose to allow US citizens to invest, not foreseeing the severity of the impending SEC rules.

US regulation has become hostile to the point that many projects have fled to nations where cryptocurrency and blockchain tech is nurtured or accepted in a more forward-thinking way, often by countries with smaller economies seeking to reap the potential benefits of new and innovative technologies. Zug in Switzerland has become a blockchain hub, as have Ireland, Malta, Liechtenstein, and many other fun-sized nations.

A statement released in March suggested that cryptocurrency projects would be held to the standards outlined in the Bank Secrecy Act aimed at fighting the funding of terrorism and curbing money-laundering. Tezos has been hit with KYC regulation that require users to prove their identity with images of them with their photographic ID, and users will only receive funds if they comply despite this not being part of the original agreement.

Many in the crypto-space are firmly against government regulation and KYC making this a minor disaster from the outset, but it gets worse – because the $232 million project is self-governed with investors holding a major stake calling the shots, this will result in a (non-blockchain secured) government database listing the names and identities of the investors responsible for making the decisions in a platform that is supposed to have no such feature, posing a huge security threat in the eyes of many.

The founder stated on Reddit that the move was not his decision, which was poorly received, and public backlash against the move has been swift and rather unanimous:

However, it’s safe to say that many less idealistic Tezos investors from the US will simply comply, with a user on Reddit describing the process as follows:

I just did the KYC. They needed first/last name, phone number, and address for the first section. The second section needed my stateside drivers license or a passport. The final part was a selfie….

The Hard Fork

The nTezos fork awards Tezos the dubious honor of becoming the first blockchain to fork before even being launched. The fork shares the open source code of Tezos with no founders rewards for this project, and of course no KYC.

It remains to be seen what willl become of the project and how the two competing versions will fare in the crypto-space, but it’s safe to say that this, the most recent development of the ever-twisting soap opera that is cryptocurrency innovation, is far from over.

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