The Financial Crimes Enforcement Network (FinCEN) is an important government institution that strives to safeguard the American people from money laundering, fraud, funding for terrorists, and other dangerous activities that disenfranchise or harm innocent people. Recently, FinCEN proposed a new rule that would require cryptocurrency wallets hosted by financial institutions in the U.S. to be tied to verified identities. The initial response to this news from the cryptocurrency community was one of confusion and anger, and I understand why. However, I would like to provide some needed context and explain why I think this could be a benefit to both the cryptocurrency community and the United States in general.
First, some context. FinCEN appears to be making this ruling in an attempt to close loopholes and vulnerabilities that would leave honest Americans in the crosshairs of dishonest and dangerous individuals. When funds are able to flow in and out of wallets without attached identities, blocking access to known scammers, blackmailers, thieves, and terrorists becomes nearly impossible. Cryptocurrency wallets that are anonymous provide an opportunity for the public’s trust to be exploited. Most of us still remember this summer’s Twitter hack that saw celebrities’ accounts hijacked and used to facilitate a Bitcoin-donation scam — over 320 people lost their hard-earned money as a result of this widespread theft.
Recently, the hack of the Ledger database saw the personal information of hundreds of thousands of individuals leaked to the internet. Using this stolen information, dishonest and harmful people are targeting cryptocurrency owners in a deluge of phishing attacks aimed at gaining access to their cryptocurrency. This attack, and so many more, all have one thing in common: They are only possible because the hackers and criminals are able to hide behind anonymous cryptocurrency wallets.
An obvious solution to these attacks is to require every cryptocurrency wallet to be tied to a verified identity. Much like you can’t wire fiat currency to a bank account without that account holder’s information being known, the same rule would apply to cryptocurrency. Enacting this rule would be a major step towards legitimizing cryptocurrency as a viable alternative to fiat money and provide much-needed protections for all Americans.
I recognize that requiring every cryptocurrency wallet be tied to a verified identity presents challenges for some Americans if the current system continues as-is. Not every American has a physical mailing address, not every American has access to the traditional financial system, and not every American can easily verify their identity as currently required. Cryptocurrency was made to make people more free, and any regulation that places hurdles in front of financial freedom is a regulation that needs adjusting.
The use of Decentralized Identity (DeID) projects can provide a way to verify one’s identity on the blockchain without exposing Personally Identifying Information (PII) on the public ledger. Working in tandem with cryptocurrency projects that utilize DeID technology offers a way to verify your identity and comply with the new FinCEN ruling with no additional burden, no additional cost, and no additional hurdles.
Cryptocurrency is at a crossroads right now. The widespread adoption of cryptocurrency is accelerating at a breakneck pace as millions of people realize its potential for financial freedom and flexibility. Simultaneously, dangerous people are finding ways to twist the freedom that cryptocurrency offers to harm people and steal from more Americans every day. The recent data breaches and growing number of scams and hacks have motivated the U.S. government to make needed changes, and it’s up to the cryptocurrency community to guide those changes in a way that works for everyone.
I am strongly in favor of the new regulation proposed by FinCEN because I know that the use of blockchain will eliminate all potential hurdles that it may bring.
Stronger regulations designed to protect Americans combined with the economic freedom offered by sound blockchain projects is a perfect formula to safeguard our country and fuel the continued mass-adoption of cryptocurrency.
I encourage people to contact your elected representatives as soon as possible — and be sure to mention that the use of blockchain technology can quell any fears or hesitations that people may have around this regulation, offering a win/win situation for all parties. Your voice is powerful, make sure you use it in a way that creates a better future for everyone. America is better when our regulators, our innovators, and our people work together and openly communicate to find new solutions to old problems.
Marshall Hayner, CEO of Metal, the first digital crypto banking platform formed in 2016, has 10 years of cryptocurrency, blockchain and related banking experience. Prior to Metal, he created the first Facebook integrated Bitcoin wallet, QuickCoin, in 2013, and the following year launched Stellar blockchain. He has advised numerous blockchain and cryptocurrency startups. Follow him on Twitter @MarshallHayner