Latest news on crypto regulation: the Warren bill debating freedom and privacy

Major news causing experts and industry enthusiasts to discuss crypto regulation.

US Senator Elizabeth Warren recently introduced a bill addressing the self-custody of crypto wallets. 

In addition, the proposed measure aims at user surveillance and crackdown on privacy tools, as noted on Bitcoin Magazine‘s official Twitter profile: 

BREAKING: 🇺🇸 US Senator Warren introduces bill to KYC self-custody #Bitcoin wallets, surveil users and crack down on privacy tools.

A direct attack on freedom and privacy 🚨 pic.twitter.com/GZPlHSwBFz

— Bitcoin Magazine (@BitcoinMagazine) December 14, 2022

News on crypto regulation: unconstitutional according to Coin Center

As anticipated, US Senators Warren and Marshall recently proposed the Digital Asset Anti-Money Laundering Act, which targets the cryptocurrency industry.

In fact, the bill, which would impose new KYC requirements on cryptocurrency network participants, has been called “opportunistic” and “unconstitutional” by the advocacy group Coin Center.

It all comes in the midst of an already uneasy week for the blockchain world as it engages in Hearings in the US Senate regarding the collapse of FTX and the recent arrest of former CEO, Sam Bankman-Fried. 

Specifically, the bill introduced by Senators Elizabeth Warren and Roger Marshall, seeks to combat digital money laundering. It also consequently targets the cryptocurrency industry with a series of proposed regulations that critics call authoritarian and unconstitutional.

Indeed, the proposed bill aims to impose Know Your Customer (KYC) requirements on blockchain infrastructure providers and participants operating in the United States, including developers who create software for decentralized networks and even miners and validators who run such networks.

Warren and Marshall’s bill would direct the Financial Crimes Enforcement Network (FinCEN) to treat cryptocurrency wallet service providers, such as miners and validators, and other network users as “monetary service companies,” according to Warren’s statement. Thus, they require KYC for participants along with a requirement for anti-money laundering (AML) programs.

The bill would also impact non-hosted or self-custody crypto wallets by requiring platforms and networks to identify such clients and track their transactions. 

FinCEN had already proposed such a rule in December 2020, which many companies and supporters of the cryptocurrency industry had spoken out against. In fact, it has yet to be implemented, although the bill seeks to finalize precisely that process.

In addition, the bill prohibits any financial institution from using a digital asset mixer service or other privacy-enhancing technologies. Mixers are generally used to hide cryptocurrency transactions between wallets. The best known of these is Ethereum‘s, Tornado Cash, which was banned by the US Treasury through sanctions in August.

Valkenburgh on the news about the bill: it does not prevent FTX-like crashes 

In a recent statement following the new crypto regulation bill, Senator Elizabeth Warren said: 

“The cryptocurrency industry would have to follow common sense rules like banks, brokers and Western Union, and this legislation would ensure that the same standards are applied to similar financial transactions. The Bipartisan bill will help fill the gaps in crypto money laundering and strengthen enforcement to better safeguard US national security.”

However, the bill has barely been announced and has already attracted close scrutiny from the cryptocurrency industry. In fact, in a Twitter post, the cryptocurrency advocacy group Coin Center denounced the bill, calling it an opportunistic and unconstitutional attack on cryptocurrency self-custody, developers and node operators. 

The official Twitter profile of Peter Van Valkenburgh, research director of the Coin Center, reads: 

Senators Warren and Marshall's proposed bill subjecting software devs & nodes to AML is "a repudiation of liberal values and a move towards the types of surveillance and control prized by authoritarians like Vladimir Putin, Xi Jinping, and Kim Jong-un"https://t.co/s7pRKsWV2W

— Peter Van Valkenburgh (@valkenburgh) December 14, 2022

As anticipated, the bill was introduced following the November collapse of cryptocurrency exchange FTX. Recently, SBF was arrested and is facing charges from the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), as well as the Complex Frauds and Cybercrime Unit at the US Attorney’s Office for the Southern District of New York. 

In any case, Coin Center argues that the bill would not prevent another FTX-like collapse in the future. Indeed, Van Valkenburgh wrote on the matter: 

“This bill focuses solely on financial oversight and does not address any of the corporate control issues that led to the collapse of FTX.”

KYC also in Europe and the UK 

The recently proposed bill against the crypto world is somewhat similar to last year’s infrastructure bill. Which amended the Internal Revenue Service‘s definition of “broker” to include companies that trade cryptocurrency, forcing exchanges to report transactions to the government. 

Moreover, these types of laws for the blockchain world are also feared because they potentially impact network participants such as validators and miners, as well as crypto wallet providers and more.

Indeed, regulation focused on non-hosted wallets has also taken hold in Europe this year, with the European Union voting to impose KYC on such wallets in March. Whereas the United Kingdom considered similar legislation this summer, ultimately scrapping its plans.