SEC Warns Crypto Could Be “Powerful Financial Surveillance” Tool If Not Regulated Correctly

US Securities and Exchange Commission (SEC) Chair Paul Atkins has warned that blockchain and crypto technology could become a powerful surveillance tool if governments get too involved. 

While speaking at the SEC Crypto Task Force’s sixth crypto roundtable, Atkins highlighted how easy blockchains have made it to link transactions to senders. He said that crypto could subsequently “become the most powerful surveillance architecture ever invented.” 

The roundtable focused on financial surveillance and privacy, and included representatives from the privacy token ZCash (ZEC), the Blockchain Association, and the Crypto Council for Innovation.

Regulators Need To Rethink How Financial Transactions Are Surveilled

Atkins mentioned the previous approach taken by former SEC Chair Gary Gensler, who regulated the crypto industry through enforcement actions and pushed for every transaction on the blockchain to be reported.  

“Indeed, if the instinct of the government is to treat every wallet like a broker, every piece of software as an exchange, 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 said.

He did, however, add that there is still a way to strike a balance between innovation and privacy. 

“Together, I am confident that we can shape a framework that ensures that neither technological nor financial advancements will come at the expense of personal freedoms,” the SEC Chair said. 

Atkins was joined by SEC Commissioner Hester Peirce, who leads the agency’s crypto task force. In opening statements, Peirce echoed Atkins’ remarks, and said that the time has come for regulators to “rethink when and how financial transactions are surveilled” as the digital asset space grows. 

SEC Commissioner Hester Peirce addresses roundtable (Source: SEC)

She then said that the rules that embody financial privacy are “overdue for a change,” adding that crypto is helping “to nudge a reassessment.” 

“Protecting one’s privacy should be the norm, not an indicator of criminal intent,” Peirce added. 

Privacy Has Come Up In Criminal Cases

Privacy has been a central point in criminal cases related to crypto protocols and developers over the years. 

In August this year, Tornado Cash developer Roman Storm was found guilty on a money laundering charge. The platform he helped create is a decentralized crypto mixing service that is designed to provide privacy for its users by obscuring transaction details. 

Since Storm’s verdict, crypto advocates have rallied behind him to get an appeal.

His case took on added significance as the US Justice Department’s stance on software developers has shifted under the Donald Trump administration. In the same month that Storm was found guilty, Matthew J Galeotti, the acting assistant attorney general of the Justice Department’s Criminal Division, said in a statement that “writing code” is not a crime.

The crypto community is also rallying behind the co-founder of another crypto mixing platform, Samourai Wallet. Keonne Rodriguez is set to begin his five-year sentence this week. During a recent conference, Trump was asked about whether he would issue Rodriguez a pardon. He replied by saying that he would look at the case. 

Trump has already issued pardons for Binance founder Changpeng Zhao and Silk Road developer Ross Ulbricht since entering the White House for a second term.