If you’re unaware of Coin Center, they’re basically the Night’s Watch for Bitcoin and other cryptocurrencies — or at least that was the analogy used by Coin Center Research Director Peter Van Valkenburgh at the 2019 MIT Bitcoin Expo.
Much like the Night’s Watch in Game of Thrones stay on alert for the various dangers that can be found beyond the wall, Coin Center is always looking into the future to predict the next regulatory battle the cryptocurrency space will face.
After working on the potential regulatory issues around initial coin offerings (ICOs) for the past few years, Coin Center is now looking to protect privacy-focused permissionless blockchains.
The Battle Over ICOs and Securities Laws
Coin Center started working on issues around securities laws in 2014, and they eventually released an explanatory paper (PDF) of their views on the matter. In other words, Coin Center was working on this kind of stuff long before the ICO boom of 2017.
“We were really concerned most fundamentally that the SEC would confuse the distinction between a running network with something like bitcoin on it and an ICO, which quite frankly often does look a lot like a security and maybe should be regulated for investor protection like a security,” said Van Valkenburgh during a panel on cryptocurrency regulation at the 2019 MIT Bitcoin Expo.
According to Van Valkenburgh, the recommendations made by Coin Center in their paper are basically the same as how the SEC views the ICO market today. However, he also added that SEC policy could still be clarified further and codified in statutory law.
“From Coin Center’s perspective, we’ve done most of the good work that we think we could actually manage to do on that issue, and now we’re looking for that next thing,” said Van Valkenburgh.
Privacy-Focused Cryptocurrencies are the Next Battle
Coin Center is now turning their focus to the emergence of robustly private, permissionless blockchains. Van Valkenburgh specifically mentioned Monero, Zcash, and various MimbleWimble implementations as examples of these private, permissionless blockchains.
“Even Bitcoin, whether it’s through wallet software like Wasabi or whether it’s through actual changes to the protocol, will deliver on the promise of electronic cash — i.e. transactions that don’t leave a record,” added Van Valkenburgh.
“If that’s what’s coming in the next three years, there is going to be a massive decline in the amount of surveillable data related to cryptocurrency transactions,” Van Valkenburgh continued. “And that’s a very good thing if you believe in human dignity and individual autonomy, but if you’re law enforcement, that can be threatening because you worry that you won’t have the information you need to catch criminals and money launderers and things like this.”
For this reason, Coin Center has started to write about the proper policy responses to this change in the level of privacy offered by cryptocurrencies. As a general summary, Coin Center views the availability of anonymous digital cash as a free speech issue at a fundamental level (you can read more on that here).
“Perhaps an overzealous or overbroad [government will] attempt to surveil these networks through new laws or policies. Perhaps [they’ll] attempt to apply the Bank Secrecy Act (BSA) . . . to people who aren’t traditionally understood as financial institutions but maybe even directly to software developers or to the users of the networks themselves to say, ‘You’re now technical a financial institution, which means you’re deputized by the U.S. government to collect information on your counterparties and report that information to government when it’s suspicious,’” explained Van Valkenburgh.
To Van Valkenburgh’s point, there have already been rumblings of possible regulation in this area. In France, President of the Finance Committee of the French National Assembly Éric Woerth shared his view that anonymous cryptocurrencies should be banned. In Texas, a bill introduced to the Texas Legislature is threatening to break the use of cryptocurrencies in a private manner.