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KYC and Why It’s Not Needed in DeFi

While crypto has been around over 10 years, the most popular apps until the last year have been centralized crypto exchanges. These centralized exchanges like Binance and Coinbase do billions in trade volume daily but also require users to submit personal details like name, email and even physical address.

This might seem harmless at first glance but consider what might happen if someone hacks into the exchange database to find that you own a large amount of crypto. Now a criminal can launch a $5 wrench attack. This is a reference to a meme and rather dark joke in the crypto community that all one has to do is buy a $5 wrench to hold someone hostage since cryptoassets can so easily be transferred wallet to wallet.

And maybe this idea of getting hacked and held hostage sounds far fetched, but the truth is it is possible. That’s a very scary way to live life, with your data, privacy, and safety depending on an exchange’s operational security to protect the honeypot of data they hold, especially since so many exchanges have been hacked over the last few years.

The key takeaway is that DeFi solves this enormous problem because the best way to protect your data is to never collect it in the first place. And as you may have learned from previous posts, all that’s required in DeFi is a compatible wallet like MetaMask to connect. Using such a wallet reveals nothing about you other than your public wallet address, which means your secret is safe.

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