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Today, FreedomWorks Foundation submitted a formal comment opposing a proposed rule by the Financial Crimes Enforcement Network (FinCEN) regarding cryptocurrency. The proposed rule would require banks and other organizations to identify, and keep records of, all individuals who use either hosted or unhosted cryptocurrency wallets. As we pointed out in our comment excerpted below, although FinCEN has corrected their procedural errors from the first version of this Notice of Proposed Rulemaking (NPRM), the contents of this notice present an existential threat to cryptocurrencies as a whole. Not only would this proposal amount to centralizing a decentralized currency, but it would create massive security and surveillance risks that would be otherwise impossible.
The text of the formal comment can be found here, in the attachment at the bottom of this page, and excerpted directly below:
"First of all, requiring disclosure of identifying information for all cryptocurrency transactions over $10,000 would effectively be centralizing digital currencies that are, by their very nature decentralized. Second, implementing disclosure requirements for convertible virtual currencies (CVCs) would create serious security risks and surveillance concerns. Financial regulators should maintain the light-touch approach to regulating CVCs that has allowed the industry to blossom. Instead, this NPRM would saddle cryptocurrencies with burdensome, new regulatory requirements for amorphous benefits.
Armed with both the identifying data and transaction information from the public ledger, both federal regulators and sufficiently savvy hackers would have unparalleled access to American’s financial information. Because many cryptocurrencies were designed specifically to thwart this type of surveillance, collecting this type of financial information would be practically impossible absent the proposed rule. Given the federal government’s track record with bulk data collection and other dragnet surveillance techniques, it is worrisome that financial regulators are seeking to create new ways to track American’s financial data.
While FinCEN’s decision to reopen this docket for public comments is a positive course correction for the procedural issues with their original proposal, the contents of this NPRM could have a disastrous impact on cryptocurrencies. Not only does centralizing CVCs run entirely counter to the nature of these financial instruments, but requiring disclosure of identifying information presents serious new security issues. For all these reasons, we strongly urge FinCEN to reconsider this action and retract this proposed rule in its entirety."