House Hearing on Cryptocurrency Crimes Highlights the Benefits of Cryptocurrencies for All Legal and Illegal Applications

During the hearing, lawmakers praised the design of cryptocurrencies, even as they contested the idea that the very things that make them at risk of illegal use also make them attractive to legitimate users.

The House Financial Services Committee hearing on “Situational Cryptocrime Part II: Examining Approaches to Combating Illegal Activities” further reinforced the “situational” aspect, from mixers to self-hosted wallets. , the nuances and understanding of both the pros and cons of everything were emphasized. And a validator.

The hearing was attended by speakers familiar with cryptocurrencies, including speakers from TRM Labs, Coinbase, Circle, and more.

After multiple testimonies highlighted the benefits of being able to trace on-chain transactions regarding illegal financial use. Ransom from Colonial Pipeline hackRep. Ritchie Torres (D-N.Y.) said what many in the room were probably thinking.

“Scapegoating cryptocurrencies provides more instant gratification than promoting cyber hygiene,” Torres said.

Still, the exchanges with lawmakers highlighted the nuances of cryptocurrencies and showed that illicit financing is still likely to occur. Traditional financial system background.

Michael Mosier, co-founder of Arcturos and former acting director of the Financial Crimes Enforcement Network, told lawmakers it doesn't make sense to impose Bank Secrecy Act-like oversight requirements on miners and validators. .

“Miners and validators are essentially producing blocks and validating blocks,” Mosier said. “And they operate just like any other Internet service provider on the Internet today. That's not what we should know about our customers. [requirements] It simply means that the data is being processed. The same goes for miners and validators, and it's basically a process of randomly allocating processing data. ”

The hearing focused on the important question of who should be held responsible for illegal financing involving cryptocurrencies. There seemed to be agreement among lawmakers that tools like blenders should be subject to greater scrutiny, but there was overall recognition that cryptocurrencies themselves do not facilitate illicit finance. .

Where cryptocurrencies are vulnerable

“From every Treasury risk assessment and every blockchain analysis assessment, the overwhelming majority of illicit finance, from everything to cryptocurrencies, happens on centralized exchanges, where on-ramps and off-ramps take place. That's clear,” Mosier said. “And almost all of that is happening offshore.”

The lack of a consistent AML/KYC framework for cryptocurrencies contributes to this.

“What's strange to me is that one of the promising ways to help close regulatory gaps and manage risk around decentralized infrastructure is the development of digital identity systems that both the U.S. government and private companies are working on. However, the topic was only briefly mentioned and discussed,” Yaya Fanusie, Director of AML and Cyber ​​Risk Policy at the Crypto Council for Innovation, said in an email to Unchained. He was a spectator at the hearing. “However, the development of digital IDs could be an early innovation that will please AML regulators and blockchain builders alike.”

The transparency and public nature of the blockchain ledger is a mitigating factor in the misuse of cryptocurrencies, according to testimony from Carol House, a senior fellow at the Atlantic Council. She said, “SWIFT, FedWIRE, and cash movements do not expose transactions to public ledgers or records for anyone to see.”

“But it takes time and a lot of space for cash to move from point A to point B around the world,” House said.

House said the design of cryptocurrencies increases the risk of misuse, as many of the attractive features of traditional financial products are bundled together in a single asset, a cryptocurrency. .

“Cryptocurrency-related crimes still exist, many of which are based on the aspects that make cryptocurrencies so appealing overall: the ability to transfer funds quickly, borderlessly, irrevocably, and without intermediaries. These are features, not bugs,” Fanusie added.

He also raised the essential issue of dealing with fraudulent use of cryptocurrencies, which also has many benefits for legitimate users.

“And those who want to address the risks of cryptocurrencies with more blatant regulation that disrupts industry infrastructure and more granular accountability that allows those capabilities to grow and benefit consumers.” “There's tension between people who want a certain approach,” Fanusy said.