ShapeShift is launching a new membership program that will become mandatory later this year, the company announced today on its website. The Switzerland-based cryptocurrency platform is ending its “exchange without accounts” policy that enables individuals to privately trade Bitcoins, Ethereum and other digital coins with anonymous counterparties located anywhere in the world.
But to alleviate privacy and know-your-customer (KYC) concerns from its users, the company positioned its new requirement as a “loyalty program” called ShapeShift Membership. The rewards program gives users benefits for frequent use such as volume discounts and higher transaction limits.
“Membership requires basic personal information to be collected,” according to ShapeShift’s Sept. 4 statement. “Today, Membership is optional, but it will become mandatory soon.” CEO Erik Voorhees said that requiring personal information “sucks” — which undoubtedly expresses the sentiment of thousands of users.
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ShapeShift Launches Membership Program
Voorhees conveyed in the Sept. 4 blog a few reasons for departing from the original policy. First, there were “requests of many of our users to have account-related features: A record of transaction history, saved/whitelisted addresses, and email notifications.”
Second, “Our increasing interest in the broad phenomenon of tokenization – the ability to “financialize” and bring liquidity to various aspects of business/customer relationships. Specifically, the ability to build tokenized loyalty programs, in which the engagement between a business and its customers can itself become an asset.”
Cash From Institutional Investors
The company was founded in August 2014 and has undergone five funding rounds that raised $12.8 million, according to data from Crunchbase. Investors include prominent blockchain institutions such as Blockchain Capital, Pantera, EarlyBird and Access Venture Partners, among others.
While user privacy has always been a priority for many cryptocurrency users, ShapeShift’s management team believes they’re taking a pragmatic approach when it comes to multi-jurisdictional compliance and complex red tape. Bringing in cash from big investors creates the need to align with tightening regulations, as well as, need to reduce legal risks for the company, its shareholders and other stakeholders.
Collecting Personal Information A Thorny Issue
CEO Voorhees acknowledged that mandating the collection of personal information “sucks.” He added, “We would prefer if the collection of personal information was not a mandatory element. We still firmly believe that individuals, regardless of their race, religion, or nationality, deserve the right to financial privacy.”
ShapeShift is hardly alone.
Most other major exchanges have implemented KYC protocols that require traders to submit proof of residence, government-issued IDs and other sensitive information — data that can be obtained by bad actors such as hackers and overzealous bureaucrats. Critics of personal data collection argue that KYC defeats the point of crypto’s ability to facilitate anonymous and borderless transactions that make unnecessary the function of third parties. That includes the government and banking parties that perpetually debase their national currencies.
But in this regulatory environment, prudence wins.
“The practice of requiring customers to hand over personal private information is one we’ve struggled with since inception,” said CEO Voorhees. “To the extent that digital asset technology remains a legal grey area, we need to be prudent and thoughtful in our approach as we navigate the regulatory environment.”