The Financial Crimes Enforcement Network of the United States (FinCEN) issued a document on December 23, 2020, concerning the requirements for certain transactions of convertible virtual currencies or digital assets. This document is currently in the public comment period and will end on January 7, 2021.
Just two days are left to officially issue the document. However, the document has been the heated topic in the American crypto community. Payments giant Square, Coinbase - the largest trading platform in the United States, and top venture capital a16z have all expressed their views. Almost all institutions show negative attitudes towards the content of the document, and believe that this regulation may hinder the innovation of cryptocurrency in the United States.
U.S. authorities have discovered that malicious actors are increasingly using convertible virtual currency (CVC) to facilitate international terrorist financing, weapon proliferation, evasion of sanctions, and transnational money laundering.
FinCEN holds that it is necessary to establish an effective procedure to protect national security, assist law enforcement, and increase transparency, while minimizing the impact on innovation.
We have summarized the three rules that have a greater impact on the market: users need to perform KYC verification; regulated firms record and verify the names and residential addresses of non-custodial wallet users for transactions greater than $3,000; cryptocurrency trading platforms need to submit information related to transactions that exceed $10,000 to FinCEN.
Gemini, a digital asset trading platform founded by the twin brothers of Cameron Winklevoss and Tyler Winklevoss, hopes that FinCEN will extend the consultation period, and reckons that the document has three major flaws:
First, the document is unlikely to prevent illegal financial activities. On the contrary, it will have the opposite effect. It may drive cryptocurrency activities out of the regulatory scope of the well-regulated US market. The proposed rules do not have strong enforcement effects and will exert a harmful impact on personal privacy.
Then, the document is full of ambiguities that will severely undermine efforts to comply with integrity and may adversely affect the ability of the United States to maintain the cutting edge in innovation sector.
Finally, the formulation of the document clearly lacks procedures. According to the provisions of the draft, what this rule can do is to drive bad actors to first systematically withdraw their cryptocurrencies from existing regulated US exchanges to their personal wallets, and then conduct any illegal activities they envision.
A16z, an investment fund managed by A16Z, expressly opposes the content of the document, noting that the document violates the Fourth Amendment, expands commercial activities beyond self-hosted wallets.
The payment giant Square, founded by Twitter founder Jack Dorsey, hopes that FinCEN will extend the consultation period, and states that the document will reduce Square's competitiveness and may increase unnecessary transaction friction, thereby limiting the United States' ability to innovate.
Coinbase, one of the world's largest digital currency trading platforms and blockchain integrated service platforms, raises objections to the 15-day consultation period and states that it should be extended to 60 days.
The non-profit cryptocurrency advocacy organization Coin Center clearly objects the content of the document and states that the 15-day consultation period was too short to ignore and contempt public opinions. At the same time, Coin Center also notes that this process is undemocratic, irresponsible, and a lack of long-term administrative procedures and rules.
Electric Capital, a crypto asset management firm, suggests that FinCEN change the consultation period to 60 days to ensure that the rules can achieve the expected goals and will not allow US citizens to suffer losses. Electric Capital also pointed out the problems that the file may bring:
On the one hand, the centralized data storage may lead the network to boast security risks. The aggregation of this data poses a major threat to American citizens; on the other hand, it destroys the high-value innovative applications of cryptocurrency and blockchain, and drives the United States to lose global interests in the financial and technological markets.
On January 7, the consultation period for this document will expire. Facing the overwhelming opposition from the US crypto community to the document, FinCEN did not make a new response. Many organizations believe that the document is not well implemented, and the document may also extend the consultation period due to the pressure. ICoinTime will continue to follow up on the progress of this matter.