Coinbase data scandal sparks calls to scrap KYC

By Yohan Yun for Cointelegraph
Tuesday, June 3, 2025

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KYC was designed to curb fraud, money laundering and terrorism financing. But in practice, it’s everyday users who end up exposed while determined attackers find ways around the system.

“Anyone is able to generate a fake US passport or diploma from a leading law school. And 50% of businesses with identity checks are likely bypassable with generative AI,” Ilia Kolochenko, CEO of cybersecurity company ImmuniWeb, told Cointelegraph.

Coinbase scandal won’t push KYC away

Though modern blockchain-based solutions can improve privacy while verifying user identities, Kolochenko said KYC will continue to persist across borders despite its flaws.

“KYC is here to stay, and regulators won’t lower the bar. If anything, they’ll raise it. Without it, crypto risks becoming a tool for every imaginable crime,” he said.

Despite the security incident, Kolochenko declined to classify it as a data breach, noting that customer information was stolen through the bribery of overseas Coinbase staff rather than through infrastructure damage or a technical vulnerability.

Regardless of what it’s called, customers’ data has been compromised. There’s little they can do other than follow best practices to maintain a clean digital footprint.

“Turn on paranoid mode — in a good sense. Update everything. Enable 2FA. Never trust an incoming call asking for your seed phrase,” Kolochenko said.

Loud is an advocate of ZK technology, which can enhance privacy while satisfying identity verification requirements. But even she admits that the technology cannot be implemented immediately due to its heavy computational needs and expenses. Read Full Article