Tezos, the blockchain project that sought to fix crypto’s broken governance models, is at the center of talk about how to handle decentralized politics – just not in the way its founders had hoped.

On Sunday, the Tezos Foundation announced that it would be carrying out know-your-customer and anti-money laundering (KYC/AML) checks on investors who bought into its July 2017 initial coin offering (ICO). At that time, investors, who the foundation calls “contributors,” were not asked to provide any personally identifiable information when they bought $232 million worth of its crypto tokens – dubbed tezzies (XTZ) – making Tezos the largest ICO ever completed up to that point.

But now, as the blockchain industry has matured, “it has become best practice to verify that contributors meet basic KYC/AML criteria,” the Tezos Foundation announcement said.

A third party, U.S.-based TokenSoft, is handling the checks, and according to one Reddit user who said they’d completed the KYC/AML compliance, the check asked for a name, phone number, address, government-issued ID and a selfie.

And this news has enraged many investors.

“If they wanted to do KYC/AML compliance they should have said so as part of the initial offer,” wrote one Reddit user in response to the announcement. “Changing the deal after the sale has been completed for months is bad business, no matter how they try to dress it up.”

Part of the frustration is likely that this is just the latest obstacle standing between Tezos investors and their tokens.

The blockchain launch, which would unlock the tokens for investors, was delayed for months after a spat between Tezos’ founders, Arthur and Kathleen Breitman, and Tezos Foundation president Johann Gevers broke out less than three months after the ICO. Yet, even after the Breitmans’ seeming victory, with Gevers stepping down from the foundation in February, there wasn’t an immediate launch of the blockchain.

As such, investors have been waiting for over a year since Arthur Breitman wrote – in May, before the token sale – that an early-2018 launch was “entirely within the realm of possibility,” if it even took that long.

And although Tezos’ current timeline for the beta launch is set by the end of the second quarter 2018, with the new KYC/AML process, some investors who are unable to complete the verification or refuse to now worry the won’t ever receive their tezzies.

And with that, some investors are getting quite irritated. Echoing a common sentiment (in terms that weren’t even especially hostile), one Reddit user said:

“Just refund our goddamn money!”

Best practice?

CoinDesk reached out to the Tezos Foundation asking about refunds of investors’ bitcoin and ether, but did not receive a clear response.

Instead, a spokesperson said the foundation would “follow blockchain ecosystem and industry best practice” in carrying out the KYC/AML checks. Neither the announcement nor an accompanying FAQ explained what would happen to investors’ funds if they did not complete the checks.

While traditional financial services providers must carry out KYC/AML checks on customers, Matt Gertler, general counsel at Digital Asset Research, finds the foundation’s justification for following newly refined industry consensus on ICO procedures unconvincing.

“The rules haven’t changed,” he told CoinDesk. “It’s not that KYC/AML has become the norm, you either had to do it or not.”

Timothy Draper, a venture capitalist who has provided financial backing for the Tezos protocol and Dynamic Ledger Solutions (the Breitmans’ company, which controls the still-proprietary code behind the network), was more forgiving, telling CoinDesk:

“It is a dynamic regulatory environment. I am sure the team has weighed all options.”

And other Reddit users came to the project’s defense. One wrote, “You’re buying tokens. You need to do KYC on any exchange for that.”

But because many investors are contending that the project’s goal of decentralization clashes with its insistence on collecting data, some might decline to hand over their personal information. In that case, Gertler said, recission, or bringing the parties back into the position they were in before they made the contract, would be a reasonable approach.

Yet, the Tezos Foundation may not agree.

The ICO’s terms state that contributions were not investments, but actually “non-refundable donation[s].” The terms further warn of regulatory risk, and even state, “The contributor understands and accepts that TEZOS [the Tezos Foundation] cannot guarantee that contributors shall have any allocation of XTZ when the TEZOS Network is created.”

On top of that, contributors are required to waive the right to sue any entity associated with the Tezos network.

However, that has not stopped plaintiffs from filing four lawsuits against the Tezos Foundation, the Breitmans, Dynamic Ledger Solutions and others associated with the project. And, with that, there’s no guarantee that Tezos’ terms will hold up to legal scrutiny.

Going rogue

Those terms might worry many investors and outside observers, but apparent differences of opinion among the Tezos ranks could also cause anxiety.

For instance, on Reddit Arthur Breitman appeared to disavow the decision to conduct KYC/AML checks – posting “Not my call,” in response to another user’s call for clarity. After another user shot back, stating that Breitman is a founder and it’s distressing that he doesn’t have any ability to make a decision on his project, he merely posted, “Agreed.”

Kathleen Breitman declined to comment on the news.

But there are not only whispers of unrest within Tezos, but also from the outside – in the form of a fork.

While crypto true believers make all sorts of asseverations on social media, a number of industry observers, including ethereum creator and crypto heavyweight Vitalik Buterin, have begun to advocate a Tezos hard fork. Hard forks have become a popular way for opposing camps within a cryptocurrency community to part ways, splitting the blockchain in two and creating an alternate cryptocurrency in the process.

“This seems backwards,” Buterin wrote on Twitter, adding: “Why can’t third parties just run a script to scan the BTC/ETH blockchains, see how much everyone contributed, calculate how much XTZ everyone should get, and generate the genesis block without Tezos Co involvement? That’s how the Ethereum launch worked.”

Buterin even went so far as to provide a script program that would carry out the plan.

Still, that’s just talk; but at least one group of disgruntled Tezos fans actually plans on executing a fork.

A developer going by the name yellow_snake has set up a website and social media channels for nTezos, which the group describes as an “instantiation of Tezos” that is independent from the foundation and is instead self-governed, with no KYC/AML checks. The group will give accounts the same allotment of tezzies as they had initially on the Tezos blockchain (with the exception of the Tezos Foundation, which will get nothing).

Speaking about the Tezos Foundation, yellow_snake told CoinDesk, “As a well-defined legal entity with a lot to lose, it is an easy-target which can act as a pressure point on the network. I think the people at the [Tezos Foundation] act in good faith. But it is clear to me that they are in the wrong position to launch the network.”

He continued, “This is what nTezos is aiming for: an independent and self-governing network of computers running the Tezos software.”

Still, the group, and any others that are interested in forking off the original blockchain, will likely have to wait till the beta launch, since unlike many blockchain-related projects, Tezos’ code is under Dynamic Ledger Solutions’ control, to be released as open-source software after the launch.

Yet, that doesn’t seem to be influencing yellow_snake’s insistence on forking Tezos.

Instead, speaking to many Tezos investors’ feelings, the developer concluded:

“The KYC was a breaking point for a lot of us. It is a breach of trust, an invasion of privacy and … it compromises Tezos’ core value-proposition as a potential safe-haven for property rights.”

Glowing stove coil image via Shutterstock