The SEC is hosting a task force roundtable on the future of crypto privacy, hosted by pro-crypto commissioner Hester Pierce.
In his opening remarks, Chairman Paul Atkins said the agency is considering how to strengthen groundbreaking privacy protocols while addressing “threats to national security.”
“Today’s roundtable participants will grapple with a question that is, at its core, deeply American: whether people can participate in modern finance without giving up their privacy. This tension raises important questions. On the one hand, the federal government has a duty to protect Americans from national security interests and threats, including through measures like the Bank Secrecy Act, which the Treasury Department and other agencies use to deter illicit financing.
On the other hand, the freedom to manage one’s own affairs, including financial matters, free from government and other oversight is a core American value.”
Atkins says it’s important that regulators resist the temptation to gawk at Americans’ digital data.
“With the advent of crypto, it is not a leap to imagine a steady migration toward a future where the government and a constellation of intermediaries can peer into nearly every dimension of an individual’s financial life. While regulators may have a voracious appetite for data, that tendency is clearly – and fundamentally – incompatible with the kind of free society that made America great.
Regulators must therefore remain humble and principled as we embrace the opportunities that crypto offers. In the analog era, financial supervision was naturally limited by paper documents, physical distance and manual processes. While these delays were inconvenient for the government, they obviously limited the amount of information the Commission could obtain about any U.S. investor. However, these limitations have been dramatically reduced in the digital age, which is why the current conversation about crypto- and privacy-enhancing technologies is especially important…
Atkins warns that crypto could be used to enable remarkably invasive levels of surveillance.
“Public blockchains are more transparent than any traditional financial system ever built. Every movement of value is recorded on a ledger that anyone can inspect. On-chain analytics companies are already exceptional at helping law enforcement link on-chain activity to off-chain identities. In other words, if crypto is pushed in the wrong direction, it could become the most powerful financial surveillance architecture ever invented.
If the government’s instinct is to treat every wallet as a broker, every piece of software as an exchange tool, every transaction as a reportable event, and every protocol as a convenient surveillance node, then the government will transform this ecosystem into a financial panopticon.”
Atkins says privacy protocols such as zero-knowledge proofs have the potential to verify that users and transactions are legitimate, without allowing the government to track specific activities.
“…This technology enables tools that protect privacy that the analog world could not provide, such as zero-knowledge proofs, selective disclosure, and wallet designs that allow users to prove compliance without handing over their entire financial history or personal data to intermediaries or to the government. You can imagine systems where a regulated platform can demonstrate that its users have been screened, without the ability to keep a permanent, personalized record of every payment, transaction or donation…
Together, I am confident that we can shape a framework that ensures that neither technological nor financial progress comes at the expense of personal freedoms.”
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