Steve Mnuchin sent a certain section of the cryptocurrency community into turmoil last week when he announced that the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) was about to unveil “significant” changes to the way cryptocurrencies would be regulated. What does Mnuchin have up his sleeve regarding regulation of cryptocurrency in the US, and how likely is he to succeed?
America’s Turn to be Regulated
Bitcoin and cryptocurrencies have been more heavily regulated in the past two years than at any point in their history. Europeans in particular have borne the brunt, with Anti-Money Laundering Directives IV and V targeting cryptocurrencies specifically, while the Financial Action Task Force brought in their own strict regulations last year which governments are applying in their own ways. We can expect wide cryptocurrency regulation in the future as the industry grows and matures further – indeed it is essential if it is to grow as hoped.
America has been treated relatively well so far, with Bitcoin regulation by state being generally light and only varying slightly, although this seems set to change. There are suggestions that the government could demand that every cryptocurrency holder declares their holdings on an annual basis with their tax return as has happened in Ukraine, while others have gone further and suggested that Bitcoin will be all but banned.
Mnuchin said that he wanted to make sure that “cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts”, which suggests stripping the anonymity from addresses and accounts is a high priority.
Enter the Constitution
Before we get too Orwellian about this, it’s important to remember one very important thing – the Constitution. Bitcoin as a concept is protected by the First Amendment, which treats the code in which it is written (for that is all it is in reality) as free speech. This concept was fought for, and won, by the cypherpunks of the early 1990s. This means the government cannot simply shut Bitcoin down or delete it – not that they could if they wanted to.
If Bitcoin cannot be killed, can it at least be castrated? This would take the form of the authorities demanding a ‘back door’ be built into the code, or a method by which they could otherwise snoop at transactions on the blockchain.
This would be a flagrant violation of the Fourth Amendment which protects a citizen’s “reasonable expectation of privacy”, which has already been tested when Apple refused to let the FBI have access to the iPhone of San Bernadino shooter Syed Farook in 2016.
The End of Anonymity?
The next best thing the government could do then is demand that cryptocurrency addresses be registered and therefore de-anonymized, with the promise that they will not be looked at without a warrant, much in the same way as regular bank accounts.
This concept clearly flies in the face of one of cryptocurrency’s central tenets, the right to privacy, and any regulations along these lines will likely result in legal action by the cryo community in one way or another, again on the back of a Fourth Amendment infringement.
Of course it is impossible to say who would be the winner in such a case, but Americans are fierce protectors of their right to freedom, so you can bet they won’t take a challenge on their financial privacy lying down.
A Turning Point in Bitcoin’s Future
With Bitcoin’s rapid rise in recent years it was always going to come to this – a state can only take so much subversion of any aspect of its control and will fight back when it feels under threat.
Clearly the current administration sees the likes of Bitcoin as a threat to an aspect of its dominance over the citizenry, with the perceived level of threat only truly known when the new regulations are announced.
What the new cryptocurrency regulations will entail and how much they will infringe on the rights of crypto holders will of course only be known in time, and may even end up being determined by the courts. On the plus side, such an eventuality could finally bring all the different crypto tribes together to fight a common enemy.
Apart from Justin Sun, who will just try to shill TRX.