The sentiment of the Digital Asset Anti-Money Laundering Act is relevant, especially considering the recent failures of the FTX exchange, as well as others who are dealing in the exchange of unregistered securities.
I applaud lawmakers for seeking solutions to stem illicit finance into ‘cryptocurrencies.’ However, this bill also demonstrates the need for legislators to not over-regulate the technology of blockchain.
Case and example, the bill seeks to classify self‐hosted wallets as money service businesses. Wallets should only be regulated from the perspective of fiat on and off-ramps, i.e., the exchange into actual government issued currency.
Current laws regarding source of funds can be utilized along with tracing technologies to eliminate money-laundering, whilst not limiting the access to the underlying technology that self-hosted wallets provide. An example of such a wallet could host a Netflix like application, utilizing the token to pay for access as well as storage fees to miners for the data.
It will take years to undo legislation that over-regulates enterprise application self-hosted wallet technology. We strongly encourage legislators to look more closely at these facts and remove any language that stifles self-hosted wallets for business use, rather than currency exchange.
I am also concerned with the new classification of miners as money service businesses.
Money transmission laws should be explicitly applied to fiat on and off ramps. Miners and transaction validator functions, which include a permanent time-stamp server, data storage, and validation of data access, are not functions of money transmission. Rather, these miner functions could be utilized by money transmitters, such as banks and digital currency exchanges, to maintain the integrity of records. Examples of the utility-based functions miners perform include receiving requests for storing enterprise data and maintaining the integrity and availability of the data.
To limit transaction processors and miners to simply money transmitters would stifle this innovative technology and create unnecessary obstacles.
Most countries are similarly seeking to eliminate money-laundering and financial crime through KYC and AML requirements, yet they are quickly adopting blockchain technology to improve the efficiencies, integrity, and traceability of their nation’s economy. This requires businesses have access to blockchain self-hosted business wallets.
All language regarding self-hosted wallets that are used for business purposes should be removed from the act, or other nations will inevitably leap-frog ahead of the United States, due to their adoption and implementation of this innovative technology.
To eliminate money laundering and financial crimes it is important to prohibit financial institutions from handling, using, or transacting business with digital asset mixers, privacy coins, and other anonymity-enhancing technologies. Anonymity coins, crypto mixers and the like are typically used by criminal groups to obfuscate illicit funds.
Anyone should be able to operate with privacy on the blockchain where the public cannot identify, trace, or access any users’ financial information, except for law enforcement if it has probable cause to do so. You’re just incentivizing crime by being able to create anonymity.
The balance of privacy and traceability of transactions is what makes blockchain inherently able to assist law enforcement to uncover the identities of transaction participants, when the lawful need arises. This requires no additional legislation to enjoy.
On the other hand, coin-mixers and privacy coins purposes are the complete anonymity of its users, in essence hiding the participants identities and therefore the nature of the transaction. This essentially eliminates the lawful ability to ascertain liability of either contracts or criminal actions. Therefore, we agree that these methods of obfuscation should be a concern for government seeking to eliminate financial crime, as well as enforce legal contracts.
It is important for lawmakers to take a more pragmatic approach by gaining further insight. I would advocate that Federal lawmakers urge current applicable agencies such as the SEC and CFTC to go after bad actors as they currently do in other industries.
We must not set a precedent of updating our Nation’s laws every time a new innovative technology emerges nor make knee-jerk reactions prior to having the proper time to investigate and understand the differences between the singular use cases of digital currencies and the underlying innovative technology of blockchain, which has thousands of other uses that could help secure the nation, empower data integrity, and provide new efficiencies for enterprise and governments.
I would encourage the proper classification of these core utilities and use-cases rather than mistakenly over-legislate and over-regulate this technology, placing our country behind others with wider adoption.
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