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US Congress debates stablecoins, self-hosted wallets as privacy vs AML debate rages on

Late last week, the U.S. Congress debated several bills related to digital assets. Two that provoked notably fiery exchanges were the Stablecoin Bill, which is one of a few competing bills pertaining to regulating stablecoins, and the Keep Your Coins Act, which aims to prevent the government from restricting self-hosted wallets.

The Stablecoin Bill was divided along party lines

The Stablecoin Bill was debated in a markup session in the House Financial Services Committee. Despite vigorous objections from the Democrats, it passed, although this version of the bill does not have support from the White House, Treasury, or Federal Reserve and still needs to be voted on in a full House session.

The main point of contention about the bill was the power given to states and the lack of (limited) involvement of the Federal Reserve. Predictably, this debate fell into two distinct camps along party lines.

While the Democrats and organizations like the American Banking Association (ABA) and Credit Union National Association (CUNA) were concerned about the lack of Federal supervision, Republicans expressed the desire to empower states in the name of innovation and progress.

Republican whip Tom Emmer (R-MN) said the Fed “has its hands full already, barely able to sufficiently supervise the banks it’s responsible for.” Rep. Maxine Waters (D-CA) countered that “McHenry’s Bill promotes a race to the bottom by creating 58 different licenses.”

However, the parties were able to find common ground on one thing—the involvement of big tech. The bill, as it stands, would allow big tech firms like Twitter/X and Meta (NASDAQ: META) to be involved with stablecoins, and both sides agreed this needed to be dealt with. Rep. Waters expressed concern that the Bill would give the likes of Twitter/X the power to issue a stablecoin without giving regulators the necessary tools to “reign in the risks.”

The Keep Your Coins Act also sparked heated debate

Underscoring the stark differences in values between the two parties, the Keep Your Coins Act, designed to prevent the government from restricting self-hosted wallets, was also debated fiercely.

Democrats largely see self-hosted wallets as potential tools for money laundering, tax evasion, and drug trafficking. By contrast, Republicans see them as a basic freedom to be protected, something akin to a safe deposit box in the digital world.

From another point of view, Rep. Brad Sherman (D-CA) likened self-hosted wallets to bearer bonds which were outlawed in the United States in the ‘80s. Dems unanimously criticized secrecy from the government.

The freedom vs regulation debate rages on

Time and again in the digital currency industry, we see the same concerns raised and the same debates repeated.

On one side, lovers of liberty are afraid that all of this could lead to a digital tyranny with total government control, and they are seeking to limit that. On the other hand, there are concerns that criminals, such as drug dealers and money launderers, will have free reign if the technology isn’t regulated properly.

Both sides have valid concerns, and a balance needs to be struck. One attempt to find such a balance was the EU’s decision to allow self-hosted wallets while imposing some restrictions, such as subjecting transactions above €1,000 between a self-hosted wallet and an intermediary to AML (anti-money laundering) procedures.

Across the world, governments are grappling with these issues, and the debate is only heating up. What most haven’t yet realized is that only the original Bitcoin protocol (BSV) was designed to comply with financial laws and regulations while protecting privacy and liberty.

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