{"id":102117,"date":"2020-10-31T18:00:00","date_gmt":"2020-10-31T15:00:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/the-crypto-compliance-lie-sacrificing-privacy-does-not-make-us-safer\/"},"modified":"2020-10-31T18:00:00","modified_gmt":"2020-10-31T15:00:00","slug":"the-crypto-compliance-lie-sacrificing-privacy-does-not-make-us-safer","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/the-crypto-compliance-lie-sacrificing-privacy-does-not-make-us-safer\/","title":{"rendered":"# The crypto compliance lie: Sacrificing privacy does not make us safer"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a396e864a237\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a396e864a237\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/the-crypto-compliance-lie-sacrificing-privacy-does-not-make-us-safer\/#Anti-Money_Laundering_compliance\" >Anti-Money Laundering compliance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/the-crypto-compliance-lie-sacrificing-privacy-does-not-make-us-safer\/#Lightchain_vs_darkchain\" >Lightchain vs. darkchain<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># The crypto compliance lie: Sacrificing privacy does not make us safer <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjAtMTAvZWFlNmZiNDgtZDRjZS00OTI3LWJhODYtODU1YjkzNTZmODY1LmpwZw==.jpg\" \/><\/p>\n<div data-v-5a136f3a=\"\">In the last month, we\u2019ve seen the United States Federal Reserve come after BitMEX for failing to identify customers, crypto intelligence firm CipherTrace report that most crypto exchanges are not collecting enough user info, and the so-called \u201cFinCEN Files\u201d demonstrate that even large banks that collect and report vast troves of suspicious transactions are not doing enough to unbank the bad guys. Suffice to say, it\u2019s a great time to be alive for compliance hardliners and a rough patch for privacy advocates, aside from a healthy recent boost in the price of Monero (XMR).<\/p>\n<p>Stepping back and looking at the larger trend, many in the crypto community are now <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/twitter.com\/jchervinsky\/status\/1315758137903902721\">imagining<\/a> a world with two \u201cBitcoin blockchains\u201d \u2014 or perhaps, two distinct networks of various blockchains. The first is a blessed white blockchain, or \u201clightchain,\u201d akin to a friendly neighborhood where everybody knows each other\u2019s name; the other is a sinister \u201cdarkchain\u201d full of drug traffickers, pimps and terrorists (as far as we know). <\/p>\n<p>Privacy advocates fear that because Know Your Customer rules are being placed on exchanges that custody crypto and that banks and institutional wealth will make crypto mainstream via similar custodial solutions, only those who custody crypto with such institutions will be allowed onto the lovely lightchains. These chains will lie within the lofty ivory pillars of Wall Street and beneath the halls of wealth and power, while the vast unwashed masses who prefer to hold and control their own crypto will be forced into a crypto ghetto on the darkchain. <\/p>\n<h2><span class=\"ez-toc-section\" id=\"Anti-Money_Laundering_compliance\"><\/span>Anti-Money Laundering compliance<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>While the basis of these fears is well founded, it is important to remember the original purpose of AML compliance, originating in 1970s America, was to assist law enforcement in its investigations. Maintaining a vast reporting system for monitoring user activity and feeding it to the government, like the modern Transportation Security Administration airport panopticon, is a 21st century, post-9\/11 invention of Bush-era America and hardly a prerequisite for a global financial network. <\/p>\n<p>In fact, this recently imposed norm was a major impetus for many privacy-friendly innovations in crypto, including, arguably, Bitcoin (BTC) itself. In other words, the \u201clightchainers\u201d are justifying potentially removing the privacy from blockchains under the same \u201cWar on Terror\u201d rationale for the <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/www.congress.gov\/107\/plaws\/publ56\/PLAW-107publ56.pdf\">Patriot Act<\/a>, only with the possibility of permanently airing your dirty laundry on a public ledger rather than keeping it between the banks and government (and occasionally <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/www.buzzfeednews.com\/article\/johntemplon\/fincen-files-the-documents\">leaked<\/a> to Buzzfeed).<\/p>\n<p>More importantly, it has long been obvious that even in the crypto space, the imposition of global mandatory wallet identification and traceability has strained this original \u201cassisting law enforcement\u201d rationale for AML rules. Historically, the Elliptics, CypherTraces and Chainalysises of the world have spent most of their energy working with law enforcement to map out actual criminals and their transactions resulting from actual criminal activity, rather than setting up vast dragnets of everybody\u2019s wallet addresses.<\/p>\n<p>Whether it was Mt. Gox or other exchange hackers, BitLocker scammers or international criminals of many s<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/trip-and-travel\/\" data-internallinksmanager029f6b8e52c=\"10\" title=\"Trip &amp; Travel\" target=\"_blank\" rel=\"noopener\">trip<\/a>es, Bitcoin has a feature that allows blockchain exploration compliance firms to demarcate known bad guys and create an actual \u201cdarkchain\u201d not to be mixed into the polite company of the remaining blockchain(s).<\/p>\n<p>This system has worked. Most <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/kelman.law\/blog\/crypto-aml-compliance-fatf-travel-rule\/\">virtual asset service providers<\/a>, or VASPs, (i.e., exchanges) use blockchain explorer compliance tools to block and track transactions on the darkchain and assist law enforcement with its investigations. These efforts have also made it much, much harder for actual criminals to launder their crypto on compliant exchanges.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Lightchain_vs_darkchain\"><\/span>Lightchain vs. darkchain<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>So, let us reject the thesis that we are barreling toward a \u201clightchain-vs.-darkchain\u201d dichotomy. Rather, let\u2019s recognize that we already have a small darkchain of proven money launderers that VASPs do not, and should not, work with and should freeze and work with law enforcement to deal with. We then have the splotches of lightchains that exist within VASPs (i.e., exchanges) for which they are, and should be, legally obligated to keep private and share only to the extent they detect darkchain or demonstrable criminal activity, rather than sharing private user information of noncriminals. This leaves us with a third chain, the vast, lovely, delightfully opaque \u201cgraychain\u201d blockchains that have served us so well for all these many years. <\/p>\n<p>To \u201ckeep blockchain gray,\u201d we must resist the efforts of the lightchain to penetrate the gray by penalizing VASPs and blockchain exploration and compliance tools that engage in unjustified tainting of the gray with the white. In other words, publicizing identifying information of exchange customers should lead to lawsuits and, in Europe, anti-privacy enforcement actions. Likewise, we must resist the darkening of our beloved graychain by policymakers, pundits and so-called crypto lawyers who advocate for penalties on operating in the gray zone.<\/p>\n<p>There is nothing wrong with holding your crypto in a hardware wallet, and to argue that those who exercise healthy cybersecurity by doing so have \u201csomething to hide\u201d stains credibility. We must resist this by advocating for the graychains, which are by no actual measures true vectors for money laundering, and by pointing out the irrationality of believing that pseudonymous blockchains are more valuable when they are no longer anonymous at all. In the end, even if the lightchainers are successful, they will be sowing the seeds of even more private forms of money that lie beyond their reach.<\/p>\n<p class=\"post-content__disclaimer\"><em>The views, thoughts and opinions expressed here are the author\u2019s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<div>\n<p><strong>Zachary Kelman<\/strong> is the managing partner of Kelman PLLC, a boutique law practice based in New York specializing in matters related to cryptocurrency and blockchain <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a>. The firm handles both litigation and corporate matters, including advising on compliance with international standards for data and financial services. Zachary has advised governmental bodies and central banks around the world on the <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>lication of local and international laws to digital assets and their many uses.<\/p>\n<\/div>\n<p><template data-name=\"subscription_form\" data-type=\"law_decoded\"\/><\/div>\n<p><script async src=\"\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener noreferrer\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/the-crypto-compliance-lie-sacrificing-privacy-does-not-make-us-safer\" target=\"_blank\" rel=\"noopener noreferrer\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# The crypto compliance lie: Sacrificing privacy does not make us safer &#8221; In the last month, we\u2019ve seen the United States Federal Reserve come after BitMEX for failing to identify customers, crypto intelligence firm CipherTrace report that most crypto exchanges are not collecting enough user info, and the so-called \u201cFinCEN Files\u201d demonstrate that even&#8230;<\/p>\n","protected":false},"author":1,"featured_media":102118,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/s3.cointelegraph.com\/uploads\/2020-10\/eae6fb48-d4ce-4927-ba86-855b9356f865.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74859,76943,74862,74894,74863,74860,75917,75141,70934],"class_list":["post-102117","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-aml","tag-anonymity","tag-bitcoin","tag-blockchain","tag-cryptocurrencies","tag-cryptocurrency-exchange","tag-exchanges","tag-kyc","tag-regulation"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/102117","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=102117"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/102117\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/102118"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=102117"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=102117"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=102117"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}