The Bitcoin exchange and Ripple gateway Bitstamp has issued a statement warning customers to submit Know Your Customer details within 28 days or risk forfeiting funds.

Funds at risk

Bitstamp has declared that customers who do not complete their online verification process will be considered to have violated the company’s terms of service and thus be liable for the imposition of penalties and freezes. It insinuated that user’s funds will be handed over to law enforcement.

In a later blog post, Bitstamp stated that the move would only apply to accounts that had been inactive for over a year. It seems that this announcement is intended to frighten users into becoming verified as quickly as possible even if they have no desire to link their account to a bank.

Ripple effect

It is unclear what affect Bitstamp’s new policy will have on the holders of Bitstamp IOUs on the Ripple network who do not have a Bitstamp account. However, the concern is that with Ripple set to implement the much maligned ‘Individual Freeze’ feature, Bitstamp will begin remotely freezing the funds of users who do not complete verification with them.

Some have even speculated that pressure from Bitstamp as the largest Ripple gateway prompted Ripple Labs to force the unpopular feature onto the protocol, despite the fact that it does not fit with the idea of a free and open transactions network.

Bitstamp coin

Bitstamp’s KYC commitment

UK based Bitstamp is the world’s second largest Bitcoin exchange after Coinbase, based in the USA. It also acts as a gateway to the Ripple network. The exchange is already known for its ridiculously intrusive Know Your Customer policies.

Its withdrawal process requires users to submit high resolution passport scans and sensitive personal details such as names and addresses. In the past Bitstamp has even taken to requiring the submission of blockchain information and the answers to Orwellian questions before allowing withdrawals. Inappropriate questions such as: ‘How did you learn about Bitcoin?’ and ‘What are your future plans and activities?’ have baffled and annoyed users. Bitcoin miners face: ‘If mining please specify your hardware specifications and submit a receipt or an invoice for your mining equipment.’

Users will be held accountable

Users can be confident that Bitstamp will act on its threats; the company has locked many accounts in the past for what are often perceived to be minor terms of service infractions.

According to Coindesk, Bitstamp has acknowledged that its policies may be unpopular, but is going to force them on users regardless, even if it means losing them. They stated: ‘it makes good sense for us to act in a conservative fashion and to do our best to safeguard the integrity of the system’.

While some users have praised Bitstamp’s commitment to regulation, many others have simply moved over to Kraken or BTC-e, claiming that this kind of data retention goes far beyond anything seen or required within the mainstream financial industry.

What is behind Bitstamp’s behaviour?

Bitstamp suggested that the move is necessary to bring the exchange into line with the UK government’s Know Your Customer and Anti-Money Laundering guidelines, but this seems very unlikely. UK government representatives have repeatedly suggested that they are not interested in Bitstamp’s operations and that it is exempt from regulations that apply to the financial services sector.

Bitstamp may be simply preparing for the day when and if UK regulatory authorities do become interested in their practices. But it seems more likely that the attitude is designed to please United States authorities, particularly since that is where the majority of the exchange’s users hold bank accounts.

Some users have even suggested that the moves come from a desire to keep up with Coinbase in being overly regulation-conscious and thus retain a seat at the negotiating table when they and US regulators shape the future financial landscape.

The difficulties of US red tape

In some fairness to Bitstamp, they must live in constant fear of being shut down or shut out. United States regulators are becoming globally renowned for attacking any business they deem to have broken some minor regulation or other. This creates a climate of fear among all companies with any US operations and is ruining the reputation of the country as a place to do business.

The kind of regulatory environment that threatens to close down a national asset like Gibson Guitar for possibly sourcing a few tonnes of ‘exotic wood’ is not a healthy one. If the United States does not improve its relationship with its businesses it will see increasing numbers of them move abroad.

Bitstamp cover

The cryptocurrency industry must retain its core values

Some would say that Bitstamp surrendering without a fight is bad, but necessary and understandable. However, actually forcing a super-intrusive regulatory landscape when even the US government has not entirely required it is not the correct attitude for cryptocurrency businesses to take.

Cryptocurrency is supposed to create a much freer and fluid financial environment. As market leaders Bitstamp should hold the core principles of technology aloft. Instead they, along with other major players seem to be forming a cabal that likes to impose financial controls that are far in excess of anything favoured by major banking groups.

Corporations and institutions tend to become more draconian, more controlling and more exploitative as time goes on. Bitstamp and others are young companies but are already behaving in ways that many would regard as grossly unreasonable. We must worry therefore about the kind of policies that could be implemented if such firms ever gained any real power over the global money supply. Then we would see the emergence of the cashless society of New World order mythology and long for the days of the old financial order.

In the spirit of true capitalism, cryptocurrency users must vote with their feet to exert financial pressure on industry players such as Bitstamp so they will stay on the right side of history.