Perpetually KYC'd Coins Using Evil Covenants

In the discussion regarding the effectiveness of KYC (Know Your Customer) practices in cryptocurrency transactions, concerns are raised about the potential for abuse despite stringent measures. The primary issue highlighted is that if a user's address is compromised, the time taken to remove such an address from the KYC list could allow for significant abuse, considering that a two-week window is deemed too long. It's argued that because a compromised account can still conduct transactions within the network of KYC-approved accounts, the timing of blacklist implementation has minimal impact on preventing the immediate cash-out of stolen funds.

The conversation further explores the limitations of KYC in deterring theft, particularly noting that without rate-limiting measures, perpetrators can swiftly drain large sums before any theft is reported and actions such as freezing of funds are taken. This points to a fundamental flaw where, despite the traceability to KYC-compliant accounts and exchanges, the absence of restrictions on transaction volume does little to prevent the quick liquidation of ill-gotten gains.

Moreover, the discussion touches upon the technical challenges associated with key management, especially in maintaining hot keys—keys actively used for signing transactions that require both high security and availability. This highlights the broader complexities in ensuring secure and efficient operation within crypto networks.

Lastly, it's mentioned that despite these critical discussions surrounding KYC implementations and their limitations, no government has yet to officially adopt or mandate any particular model, especially in the context of Central Bank Digital Currencies (CBDCs). This suggests a gap between theoretical security practices and their practical, regulated application in the burgeoning field of digital currencies.