Digital Asset Anti-Money Laundering Act: A Direct Attack on Crypto Privacy

• Senators Elizabeth Warren (D-Mass) and Roger Marshall (R-Kan) have introduced the “Digital Asset Anti-Money Laundering Act of 2022”, a bill which would impose know-your-customer (KYC) systems on custodial and self-custodial wallet providers and miners, and prohibit financial institutions from using privacy tools such as CoinJoin.
• If enacted, the bill would allow regulating bodies to file reports and surveil users without need for a warrant or government request, and would classify Bitcoin nodes as money service businesses.
• Blockchain advocacy group CoinCenter has deemed this bill the “most direct attack on the personal freedom and privacy of cryptocurrency users and developers we’ve yet seen”.

In an effort to combat money laundering, Senators Elizabeth Warren (D-Mass) and Roger Marshall (R-Kan) have proposed the “Digital Asset Anti-Money Laundering Act of 2022”, a bill which would have significant ramifications for the privacy of Bitcoin users. If passed, the bill would require custodial and self-custodial wallet providers and miners to implement know-your-customer (KYC) systems, and prohibit financial institutions from using privacy tools such as CoinJoin. KYC systems would allow the financial institutions to track and report large transactions, which is done in an effort to limit money laundering. This is in contrast to the cash-like nature of cryptocurrencies, which is realized through tools such as CoinJoin.

In addition, the bill would allow regulating bodies to file reports and surveil users without need for a warrant or government request. It also calls for a “rule classifying custodial and unhosted wallet providers, cryptocurrency miners, validators, or other nodes who may act to validate or secure third-party transactions, independent network participants, including MEV searchers, and other validators with control over network protocols as money service businesses,” which would imply that Bitcoin nodes would be classified as such as well.

The repercussions of this bill have been noted by blockchain advocacy group CoinCenter, who have deemed it “the most direct attack on the personal freedom and privacy of cryptocurrency users and developers we’ve yet seen”. The bill would significantly reduce the privacy of Bitcoin users, and impose stricter regulations on financial institutions and miners. If passed, it could also mark a historic shift in the way cryptocurrencies are used, as users are no longer able to maintain the same level of privacy they previously enjoyed.