A squad of senators helmed by crypto-critic Elizabeth Warren recently dropped a legislative bomb that could drastically reshape the digital asset regulatory landscape in the name of cracking down on money laundering vulnerabilities.The proposed Digital Asset Anti-Money Laundering Act aims to extend elements of the stringent Bank Secrecy Act — most notably Know Your Customer identity checks and suspicious transaction reporting requirements — across the whole crypto ecosystem, not just centralized exchanges.
Miners, transaction validators, wallet providers, decentralized apps and protocols would all face heightened compliance burdens mandating they gather and verify user information while supplying data on suspect financial flows under the proposed rules.
The bill essentially seeks to export the most demanding aspects of the legacy banking AML regime over to cryptocurrency and blockchain infrastructure with little modification. Sponsors argue it’s necessary to choke off rampant illicit crypto transactions that current laws fail to cover.
Based on Warren and allies’ past positions skewering crypto as predominantly useful for crime and tax evasion, many industry observers view this bill as primarily intended to undermine wider adoption rather than narrowly target bad actors via tailored policy.
Regardless of motives, applying regulations essentially written for banks to decentralized systems risks squeezing permissionless networks into centralized custodial frameworks ill-fitting their novel qualities. The implications span from individual privacy losses to stifled innovation.
For example, mandating unhosted wallets gather user information fundamentally alters their role closer to banks. Meanwhile, most DeFi protocols as programmatic software lack means to verify identities even if willing. Forcing compliance may kill US development.
While the legislation leaves technical implementation details up to regulators, compliance burdens could still incentivize infrastructure centralization around regulated intermediaries due to high costs shouldering legal risks.
Further, expanding financial surveillance to non-custodial wallets compromises American citizen privacy rights and ethical use cases relying on blockchain transaction pseudonymity.
Industry leaders argue better approaches target exploitation of decentralization to launder money rather than compromising human rights or development in response. The bill risks regulatory overreach when more targeted measures like monitoring bridge transaction flows may balance transparency with ethical use.
In sum, while sponsors aim at tightening accountability on illegal abuse feeding perceptions of crypto as a crime haven, applying blanket banking rules to decentralized tools optimized for individual sovereignty risks worse impacts than benefits.
Let’s see if congressional scrutiny can contour regulations addressing unique qualities of crypto infrastructure absent partisan preconceptions. Because forcing the Web3 ecosystem into analog compliance regimes threatens far-reaching harm beyond catching crooks.