Reddit user proposes Zero-KYC mechanism to counter P2P crypto scams

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A Reddit user has introduced a novel proposal to improve security in peer-to-peer (P2P) crypto markets without relying on traditional Know Your Customer (KYC) processes. The “Zero-KYC Assurance Mechanism for Fiduciary Money Transfer” (ZKAM-FMT) aims to prevent man-in-the-middle (MitM) scams while preserving user privacy.

The ZKAM-FMT proposal addresses a common concern in the crypto community: the balance between security and privacy. Traditional KYC procedures, while effective in preventing fraud, are often seen as invasive and burdensome by users who prioritize anonymity in their transactions.

Essentially, ZKAM-FMT suggests implementing an integrated browser in P2P marketplace applications. This browser would verify crucial transaction details such as amount, transfer title and account number without storing sensitive user data or interacting directly with banking systems. The mechanism aims to ensure proper management of funds while mitigating privacy concerns. The developer behind this, known as ShadowOfHarbinger, is a researcher who contributes to Bitcoin Cash. The proposal was originally posted on the r/Monero subreddit.

Scams and bad actors

The proposal targets a specific type of MitM scam where a bad actor intercepts transactions between honest parties. In these scenarios, the scammer tricks a buyer into transferring funds to a fake seller’s account, then manipulates the real seller into releasing cryptocurrency into the scammer’s wallet. This leaves the buyer without a purchase and can expose the seller to legal risks.

While ZKAM-FMT offers a new approach to fraud prevention, it faces implementation challenges. Integration with banking sites could prove complicated due to frequent updates and the nature of banking platforms. The creator of the proposal also acknowledges a significant limitation: its inefficiency for users who prefer mobile banking apps to traditional websites.

How to prevent fraud in the crypto industry

The debate over KYC and age-based fraud prevention continues in the broader crypto industry. Adrian Przelozny, CEO of Independent Reserve, recently said that older users, especially those over 65, are more likely to fall victim to crypto scams. However, data from the UK’s Lloyds Bank suggests that younger users between the ages of 25 and 34 make up a quarter of all crypto scam victims.

The ZKAM-FMT proposal shows us the ongoing challenge of balancing security and privacy in the crypto space alongside other solutions such as on-chain abstraction. Innovative solutions like this Zero-KYC mechanism can play a crucial role in creating safer P2P marketplaces without compromising user anonymity.

Despite this, however, the scale and effectiveness of adoption for such proposals would largely depend on overcoming technical hurdles while gathering and gaining support from both users and platform operators in the crypto ecosystem.

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