Crypto is Encouraging a Reevaluation of Privacy Issues

On Monday, regulators from the US Securities and Exchange Commission convened with cryptocurrency industry leaders to address financial surveillance and user privacy, as part of the agency’s initiatives to guide digital asset regulation.

During the roundtable’s opening remarks, SEC Commissioner Hester Peirce, who leads the agency’s crypto task force, joined Chair Paul Atkins and Commissioner Mark Uyeda in discussing how regulators might strike a balance between safeguarding investors and preserving privacy as blockchain-based financial activities increase.

Atkins expressed that cryptocurrency could evolve into “the most powerful financial surveillance architecture ever created,” contingent on the US government’s regulatory approach. He referenced the SEC’s earlier strategy of “treating every wallet like a broker,” which mandated the reporting of a larger number of transactions.

Peirce reiterated Atkins’ points, suggesting that regulators must “rethink when and how financial transactions are surveilled” alongside the growth of the crypto market.

“Our national erosion of financial privacy and the rules that encompass it are overdue for reevaluation, and crypto is helping to prompt a reassessment,” Peirce stated, adding that crypto “creates new opportunities for transactions free from financial intermediaries that are vital to our current financial surveillance framework […].” She elaborated:

“Conversely, as previously mentioned, the public blockchains facilitating many crypto transactions are accessible to all, generating a need for privacy-enhancing tools.”

The surveillance and privacy roundtable, which featured representatives from the privacy token Zcash (ZEC), the Blockchain Association, and the Crypto Council for Innovation, marked the task force’s sixth event on various facets of digital asset regulation since Peirce established the group in January.

Many in the cryptocurrency sector have raised concerns about privacy as the market continues to expand and regulators, lawmakers, and courts aim to address these issues.

Related: US SEC’s Crenshaw targets crypto in her final weeks at the agency

Market structure to restructure the SEC’s authority over digital assets

In the context of the roundtable and the forthcoming departure of SEC Commissioner Caroline Crenshaw, US Senate lawmakers are pressed for time to finalize legislation creating a comprehensive digital asset market structure before 2026.

Preliminary drafts of the bill suggested that it could grant the Commodity Futures Trading Commission expanded authority over cryptocurrency and modify the SEC’s regulatory focus.

Following the passage of a market structure bill, known as the CLARITY Act, by the House of Representatives in July, US Senate members have been engaged in discussions to bring the legislation to the floor for a vote before year-end. However, as of Monday, achieving this objective appeared unlikely according to Republican leaders.