With crypto getting more and more mainstream, several corporations and governments have started adopting it. With adoption, there comes the inevitable laws of traditional finance, i.e., KYC and AML rules. With these rules, there comes centralization as the organizations implementing these rules tend to be centralized by design.
In this article, we will ascertain the future of KYC and AML laws in crypto, which governments think are necessary, but which also violate the principle of anonymity. Later in the article, we will understand the ongoing policy trends that impact these laws. Finally, we will try to understand whether there will be enough space for a truly decentralized crypto market.
Why KYC and AML Laws Seem Inevitable?
Growing Corporate Adoption
Crypto has seen the highest corporate adoption in the last couple of years. The trend started with adoption from Strategy (formerly MicroStrategy) and has spread to tech companies like GameStop and traditional financial giants like BlackRock, Goldman Sachs, and other fund houses.
In Bitcoin, nearly 10% of the total supply is now being held by corporations and governments. This also includes ETFs and other fund houses.
Government Interest
Crypto has seen far more governments become interested after the US’s adoption in early 2025. As more countries like the UK, Argentina, and others are inching towards official adoption, there would be far more stringent laws on compliance.
These laws are expected to make KYC the norm in crypto. They would also seek to control and monitor the flow of funds in and out of the crypto markets.
Organized Crime
Organized crime remains the single largest reason for high compliance strictness in crypto. Several known criminal and terror organizations have become actively involved in crypto-based money laundering and scams to fund their operations.
Their anonymous activities become one of the pain points of governments which them impose tough crypto regulations on laymen.
Current Policies on Crypto KYC
United States
The United States remains a free country with respect to crypto ownership and user details. It also has the highest number of publicly available funds that one can invest in.
Further, with Trump’s presidency, the USA has allowed banks to act as crypto custodians.
With respect to taxation, the USA taxes crypto in the same way as other capital assets like stocks, bonds, and real estate. Also, memecoins are free from the SEC’s regulations.
Most importantly, Trump has established the Strategic Bitcoin Reserve, which is expected to benefit the US Government in controlling all the crypto assets that it owns. The move has also been seen as the first crypto adoption by a major economy.
United Kingdom
The United Kingdom has perhaps the most progressive crypto policy outside the USA, with legalized usage of cryptocurrency. The UK Government has been developing a comprehensive framework to balance innovation and ensure consumer protection. Tax treatment for crypto in that country
European Union
The European Union greatly differs in crypto policies from country to country. However, as an economic entity, they have brought the MiCA bill to regulate cryptocurrencies in a much better way. The bill lays down clear guidelines for stablecoins, which seem like a stepping stone for more comprehensive regulations.
India
India has very strict laws to prevent the proliferation of cryptocurrencies. There is a 1% tax on every transaction and a 30% flat tax on all gains. Further, the offset between profits and losses is also not allowed.
China
China has a dual-layer policy on crypto. It has outright banned Bitcoin and other cryptocurrencies in the mainland, while in Hong Kong, the government allows crypto ownership. Hong Kong residents also have access to crypto ETFs and other investment opportunities.
Japan
Japan has a fair crypto policy that allows personal and institutional investment in cryptocurrencies.
Taxation policy on crypto is determined by the level of personal income, and your profit in crypto depends on your income tax slabs.
African Union
African states have a very diverse policy on crypto. There are countries that have allowed crypto, like Nigeria, and also countries where crypto is banned, like Algeria, Egypt ,and Morocco.
Will Crypto Markets Remain Decentralized in the Future?
The core philosophy of cryptocurrency is to provide a medium of money transfer that is beyond the control of any centralized entity, such as a bank or the government. The entire system is decentralized and transparent, with a priority toward the anonymity of the user.
With KYC and AML laws being implemented, this philosophy remains at risk. However, despite all restrictions, a large portion of the crypto world remains true to the core principle of cryptocurrency.
Ethereum attempts to decentralize further with 11 code changes in the Pectra Upgrade.
Bitcoin Core Remains Independent
Currently, the Bitcoin Core is developed and maintained by a council of developers. Even if these developers get centralized, Bitcoin users could always create a hard fork and bypass them. This has occurred multiple times in the past in instances that created Bitcoin Cash, Bitcoin SV, and others.
DeFi Protocols Will Always Be Decentralized
The principle of DeFi correctly aligns with the core principles of cryptocurrencies. As a result, anyone can enter and exit DeFi markets without having to go through any KYC or AML-based verification. This helps them remain independent.
Even if you need fiat to buy crypto, there have been enough P2P marketplaces that facilitate anonymous and unrestricted transactions.
Anonymity-Focused Cryptocurrencies
Even if Bitcoin and Ethereum get centralized (which would be a very rare case), there are enough privacy-focused cryptocurrencies like Monero, which despite multiple bans and delistings, remains functional.
Conclusion
KYC and AML would be inevitable if you wish to use the centralized crypto markets. However, despite multiple attempts to ban DeFi and other forms of anonymous finance, crypto markets will always remain out of centralized control because the core technology behind Bitcoin and multiple other cryptocurrencies does not need user information to function.
