The latest proposals from FinCEN may, on the face of it, appear reasonable, proportionate, and considered. If, that is, you are embedded in or come from the centralised world of traditional finance.
Augmenting proposals for what is known as “the travel rule” to capture the identity of transactions from USD 3,000 and the underlying beneficial owner of transactions from USD 10,000 where this involves wallets which are not part of the custodial system (centralised) provides some positioning value to agencies and constituencies that need the cover of publicity to advance their own agenda. The public statements are designed to create the impression of a level playing field with traditional finance. However, when you consider previous FinCEN musings about their certainty for the status of suspicious transactions around USD 300 you must wonder what the real purpose is for setting the proposal higher.
“The rule, which applies to financial institutions and is consistent with existing requirements, is intended to protect national security, assist law enforcement, and increase transparency while minimizing impact on responsible innovation,” Treasury Secretary Steven Mnuchin said in a statement.
Bitcoin transactions and cryptocurrency transactions, in general, are about being sovereign. To some this is a mantra associated with maximalists and their tendencies towards hegemony. Being sovereign (taking responsibility and being accountable) in a transaction is a fundamental tenant of the concept behind Bitcoin. Indeed, when you consider that all transactions are transparent, always available, and always verified being sovereign in a transaction completes the transparency.
“The ability for individuals to engage in digital peer-to-peer transactions is the foundation of the crypto economy,” said Kristin Smith, head of the Blockchain Association. “Undercutting that ability with last-minute rulemaking in the twilight days of an outgoing administration is not the way to make the type of long-lasting, responsive regulations that will support the safe growth of this industry in the U.S.”
“Whether regulators acknowledge it or not,” she added, “crypto is here to stay.”
Whilst the public debate about centralisation and decentralisation is potentially interesting and often lively, I am struck by its shallow tendencies.
Both sides of this debate are absolutely wedded to codifying their oversight. In so doing, both sides misunderstand and at the same time underestimate the psychology of the nefarious parties and fail to acknowledge that all they are doing is providing the blueprint to circumnavigate the oversight at the first level and then giving implicit agreement to do whatever is desired at any level below the first.
Signalling intensions also creates windows of opportunity across the spectrum of parties involved in cryptocurrency transactions. Opportunities which create processing capabilities. Opportunities which create positioning capabilities.
What we are witnessing here, and now, is the creation of a two tier, multi-thread system.
Those that are comfortable with the centralised systems of old will transact with custodial wallets and build new opportunities from the ashes of legacy finance.
Those that are confident with decentralised systems will transact with self-hosted wallets while innovating and discarding legacy finance in its entirety.