Earlier today, Bitcoin Exchange Guide reported that Changelly was withholding Monero (XMR) from users if they failed to complete KYC verification. Now, Changelly is refuting those claims. Changelly claims they don’t just withhold Monero from non-compliant users: they withhold all types of cryptoassets.
The Prague-headquartered cryptocurrency exchange was rumored to be targeting Monero because of its status as a privacy coin. Monero (XMR) has legendary privacy protections, making it difficult to track transactions and holdings between users. Unlike with bitcoin and other coins, it’s difficult to follow Monero through the crypto ecosystem.
Reports started appearing online on places like Reddit where users were complaining about Changelly quarantining Monero due to alleged KYC non-compliance. According to users, Changelly announced it was withholding funds indefinitely. Immediately, users accused Changelly of stealing their Monero holdings.
Changelly, meanwhile, is refuting the claims – sort of. As reported by U.today:
“A Changelly representative confirms the reports but insists that they do not discriminate against Monero, which has been listed on the exchange for months. It just takes more time to process transactions that involve privacy coins.”
In other words, Changelly isn’t disputing that they’re locking cryptoassets of users. Instead, they’re disputing that they’re targeting Monero users specifically. Changelly claims that they’re targeting users who fail to complete KYC verification. If you fail to complete KYC verification on your Changelly account, then your funds might be locked up. Monero just appears to be targeted because it takes longer.
The issue also involves Shapeshift.
Changelly Is Withholding All Cryptoassets From Non-Compliant Users – Not Just Monero
The crypto community is reacting with predictable outrage. This is a centralized exchange making a decision to withhold funds that rightfully belong to users.
In a multi-tweet thread on Twitter, Larry Cermak (@lawmaster) described it as “an interesting situation.”
“There is an interesting situation going on now with Shapeshift and Changelly. The regulatory pressure is apparently increasing as Shapeshift is now imposed to KYC its customers by the end of the year. Changelly started withholing Monero due to “high risk” KYC concerns.”
1/ There is an interesting situation going on now with Shapeshift and Changelly. The regulatory pressure is apparently increasing as Shapeshift is now imposed to KYC its customers by the end of the year. Changelly started withholing Monero due to “high risk” KYC concerns.
— Larry Cermak (@lawmaster) September 5, 2018
Cernak added that exchanges like Shapeshift and Changelly, both of which allow for instant crypto swaps, will likely “become obsolete” as they’re replaced by centralized exchanges:
“It’s now clear that if a company is not decentralized (can be shut down) or not based in a very friendly jurisdiction, it will either be shut down or imposed to comply with KYC/AML. This is also why Augur rushed to terminate the kill switch because they feared an intervention…
The so called instant exchanges (Shapeshift, Changelly, ChangeNOW) will most likely become obsolete and be replaced by decentralized exchanges, which can’t be shut down. It will be interesting to see whether the regulators also try to chase after non-KYC non-U.S. exchanges.”
In other words, exchanges that want to avoid these regulations have a clear choice: they can shut down non-compliant users while remaining in countries like the Czech Republic – as is the case with Changelly.
Or, they can move to more lax jurisdictions – like the Seychelles or Malta.
Changelly Claims They “Cannot Simply Return Coins” to Unverified Customers
Changelly, as mentioned above, isn’t refuting the claims that they’re stealing customers’ coins. They’re refuting that they’re specifically targeting Monero users.
“The situation with Changelly is particularly messed up,” writes Larry Cermak on Twitter. “The spokesperson said: “When a customer refuses to provide the required data, we cannot simply return coins as we wouldn’t like to operate and transfer coins that might be potentially stolen or raised by fraud.”
Obviously, this is a problem. On one side, exchanges want to make sure their platforms aren’t being used for illegal activities, money laundering, terrorist financing, etc. On the other side, we have privacy-focused users who simply want to transact using privacy coins.
Changelly Responds Again
Changelly responded to Larry Cermak’s Twitter thread above. Changelly seemed to take particular issue with Cermak’s claim that they were stealing users’ XMR then selling it on Binance.
“We act according to AML directives and regulations that require KYC procedures. If users accept our terms, they must be ready to provide the required information. If not, they may simply refuse from sending their coins”
We act according to AML directives and regulations that require KYC procedures. If users accept our terms, they must be ready to provide the required information. If not, they may simply refuse from sending their coins.
— Changelly.com (@Changelly_team) September 5, 2018
Cermark then asked what Changelly’s procedure was after confiscating non-KYC compliant Monero. Does Changelly sell those tokens for a profit? Or do they simply lock them away? Here’s how Changelly answered:
“We'd like to clarify this moment as well. As regards XMR, KYC check has been implemented for transactions altcoin-to-XMR. Once funds get halted, we'll keep them until the real owner or legal authorities contact us and provide nessessary proofs.”
The issue with this process, of course, is that the history of Monero transactions is untraceable. It’s virtually impossible to prove that your XMR came from a legitimate source, just as it’s difficult to prove it came from an illegal source. It’s a tough situation with no apparent resolution in sight. It’s particularly tough for those who have Monero locked away in a centralized exchange.
In any case, it’s a bad idea to keep significant amounts of any cryptocurrency on any exchange. Keep your Monero (XMR) in a Monero wallet to avoid problems like this Changelly debacle.