KYC, Trust, and the Privacy Contradiction at the Heart of Crypto

Your passport, selfie, and home address are being collected by companies built on privacy and self-custody.

Then quietly handed to third parties you’ve never heard of.

And when it leaks, you’re told it “wasn’t technically their fault”.

“Legal liability might sit with the contractor. Trust damage doesn’t.”

In May 2025, Coinbase disclosed that rogue customer support staff at TaskUs accessed KYC data for around 70,000 users. Government IDs, addresses, phone numbers. The estimated impact? Up to $400m.

Coinbase didn’t personally collect that data — but they chose who did. And while legal responsibility may sit with the contractor, the trust damage landed squarely with the platform.

This pattern repeats across crypto.

Binance has faced multiple KYC breach allegations since 2019. Each time, the response follows the same script: no breach of core systems, third-party processor issue, unverified claims. Technically accurate. Practically irrelevant if your passport photo ends up online.

From Crypto to the Rest of the Internet

What’s telling is that this model has now spread well beyond finance.

Even LinkedIn’s identity verification runs through Persona. To get a blue tick — and increasingly algorithmic credibility — users scan an NFC passport and submit a biometric selfie.

Officially, it’s optional. In practice, visibility, credibility, and reach increasingly correlate with compliance.

Crypto just makes the contradiction sharper.

An industry built on “not your keys, not your coins” now demands more personal data than most banks. Proof of address. Selfies holding IDs. Source-of-funds declarations. No compliance, no access.

The justification is always the same: regulation, AML, risk controls. All valid goals in theory.

In practice, this creates global honeypots of immutable personal data.

When Protection Becomes the Attack Surface

When KYC databases leak, users can’t rotate a face or change a passport number. Physical attacks on crypto holders are rising, and security researchers increasingly link them back to corporate data exposure.

KYC is positioned as user protection. But the data collected to prevent fraud often becomes the primary attack surface.

Leaked documents are reused to:

Companies like Sumsub, Onfido, and Jumio are compliant, certified, and following industry standards. They’re also centralised repositories of exactly the data criminals want most.

“Platforms get compliance upside. Processors absorb technical blame. Users carry all the permanent downside.”

The Part We Avoid Talking About

What makes this especially frustrating is that alternatives already exist.

Zero-knowledge proofs. User-controlled identity. Reusable verification without mass retention of raw documents.

What’s missing isn’t technology.

It’s incentives.

As I’ve argued previously when writing about trust and compliance design, the hardest problems in crypto are rarely technical — they’re organisational and economic. Platforms default to the easiest compliance path, not the safest long-term one.

If you’re building in crypto, the real question isn’t just “are we compliant?”

It’s whether collecting this much irreversible personal data is truly unavoidable — or simply easier than doing better.

Because when that data inevitably leaks, “it was the processor” won’t matter to the people whose lives just got riskier.