If you wanted to kill the crypto industry, but not change any of its technology…. How would you do it?
Turning off the internet isn’t really a viable option.
And banning code from Github is a free speech violation.
In reality, the solution is much more simple…. Introduce bureaucracy. A lot of it.
Make it prohibitively impossible for a company to functionally use crypto, and they won’t even touch it. Sure, it may only cost a few cents to move 100 million USD, but if you tack on several million in administration costs the transfer fees won’t even matter.
The way that this would be executed would be forcing all participants in the crypto ecosystem to enforce KYC checks on every transaction and wallet.
Want to move some Bitcoin? Well the miners need to know you are KYC’d and aren’t on the OFAC sanctions list before they can include your transaction in the block. Your unhosted wallet provider would also have to start implementing KYC before you are even allowed to enter your private keys. Smart contract operators would be legally bound to deny anyone who was anonymous from calling their contracts. Developers would be liable for publishing open-source, anonymous, unregulated code to Github if it didn’t enforce the Bank Secrecy Act rules.
A fully permissioned walled garden with total surveillance.
Today Senators Warren and Marshall introduced the Digital Asset Anti-Money Laundering Act of 2022. The bill will not be passed this year and has a very low chance of even making past committees next year. But it shows where some contingent of Congress is throwing in their hats. Our industry is hitting sufficient size and the power players are out for blood.
This is how you kill an industry. With 1 paragraph.
The DAAML bill changes the definition of pretty much all crypto market participants to be Money Service Businesses. What this means is that they would have to collect KYC information on all parties that transact through their network or face fines. Under these rules, Bitcoin miners and Ethereum validators would be forced to collect, retain, and filter identifying info on all wallets sending digital assets back and forth on their networks. Furthermore, unhosted wallet and smart contract developers would be liable for publishing open source code if they didn’t include means to check the identity of the parties using the software.
Forcing Bitcoin miners and PoS validators to KYC network participants has been a fringe demand for years now. This is the first time though that it has been proposed as a bill in the US congress. Maybe it's just a result of the current post-FTX milieu, but it's a direct shot across the bow of our industry and the millions of market participants globally who depend on these decentralized networks.
Additionally, this represents yet another attack on open source developers who have a clear and enshrined right to publish code without punishment. Nor can the government compel an individual to speech based on existing laws. Developers cannot be arrested for publishing open source code that is found to be in violation of the Bank Secrecy Act. Sen. It's an unconstitutional assault on the 1st amendment.
None of what is written in the bill would have prevented the fraud perpetrated by SBF at FTX.
These two opportunistic Senators are latching onto the negative coverage in the media right now to try and railroad through a potentially unconstitutional bill. It shows their true colors, establishment of a financialized security state much akin to China or Russia, where the government agencies have unfettered access to the financial lives of all Americans and people around the globe. An omnipresent overseer of all economic and financial activity, using data to build a hyper-aware surveillance system that weaponizes money and banking against those it considers the enemy or undesirable.
The general claim for this obtuse bureaucracy will always be “nAtIoNaL sEcUrItY” or preventing “terrorism” or god knows what other silly bullshit was made up in the wake of 9/11. 25 years ago we didn’t have an all seeing overload wanting to look at every transaction over $600 globally. Any looney presenting a bill in 2000 that would have degrade financial privacy rights the way the BSA did would have been tarred, feathered, and chased out of Washington right quick.
Having worked adjacently with the NSA many decades ago, the end goal of the surveillance state is a 24/7 full overview of every citizen's actions, speech, and financial accounts. The NSA called it “Total Information Awareness.” A state of knowing the target in question better than they know themselves. With the growth of AI, and other tool assisted filtering programs, it has never been easier for a massive security agency to maintain hegemonic control over its citizens. China, Russia, North Korea all dream of this outcome. It’s the primary way that you control a population and suppress dissent.
Anonymity is not a bad or criminal thing. On public networks it’s a gift. Separating your public and private life is necessary to live without fear of wrench attacks or agents from three-letter government agencies showing up at your door in the middle of the night. While this might seem somewhat unhinged and conspiratorial for people living in Europe and the West, it's a regular occurrence in despotic countries. We don’t have to guess how much power is wielded with these abilities.
And this is why Sen. Warren’s and Marshall’s bill is such a travesty of the law. It would compel open source developers to write specific code to satisfy KYC regs, otherwise they would face jail time. Code is free speech. The state cannot stop or punish someone for publishing code. The OFAC sanctions this year showed how poorly thought out the action was and scores of innocent privacy-loving individuals who had committed no crimes were caught up in its scope.
We can’t have a repeat on a much grander scale. This bill needs to be shut down through any means possible. It’s just bad all around and seeks to ensconce a banking monopoly for existing institutional actors. 2023 is going to be a landmark year for crypto legislation, no matter what digital asset you support. We can’t let the actions of a few deceitful, power hungry liars to distort the public's view of our industry. We can’t lose control of the narrative of an open, more equal and transparent financial system. It’s why we have to fight and speak loudly for those who are making a positive difference.
Flywheel came together in the wake of the Luna collapse to try and reclaim that narrative. We believe that we’re on the precipice of a new monetary regime and have one chance to enact sensible legislation that helps our industry grow and thrive. Bills like this are anathema to our goals and vision, highlighting their dangers is necessary.
This week’s interview with Ryon from Horizons law was supposed to be a light hearted, fun interview (watch the whole thing, it’s great, top guest, top craic). Nearly 2 hours into it, we asked Ryon what his “nightmare” scenario was… and he gave a watered down version of what appears in the bill. My guess was that it was so preposterous to him to enforce strict KYC at the exchange level, that he wouldn’t even begin to think that Congress would mandate it at the protocol/consensus level. In this post-FTX environment, nothing is off the table and sharks are out for blood.
Ryon told us after the bill was published that “Senator Warren’s failure to take the time to understand the nuances of the cryptocurrency market are apparent in the drafting of this bill.” We agree…. What do you think?