Crypto industry leaders urged US regulators to stop treating blockchain privacy tools as a signal of wrongdoing, arguing instead that privacy is lawful, constitutional, and necessary for modern markets. The push came during the Securities and Exchange Commission’s Crypto Task Force roundtable on financial surveillance and privacy, where lawyers, builders, and policy experts challenged long-standing assumptions around transparency and enforcement.
Speakers framed privacy as a normal feature of financial systems, not an exception that requires justification. They also warned that forcing full visibility on public blockchains could block real-world use cases, weaken competitiveness, and expand government surveillance beyond statutory limits.
Legal limits and constitutional arguments
Legal scholars questioned whether the SEC even has authority to extend anti-money-laundering and know-your-customer expectations to permissionless blockchain systems. George Mason University law professor J.W. Verret said federal securities laws focus on regulated intermediaries, such as broker-dealers and exchanges, not decentralized protocols with no central operator.
Verret argued that regulators have leaned too heavily on Treasury guidance, despite repeated court losses. He pointed to recent defeats around the Corporate Transparency Act and the Tornado Cash designation as evidence that current enforcement theories lack a strong legal foundation.
He also raised constitutional concerns. Verret referenced Supreme Court Justice Clarence Thomas’s concurrence in McIntyre v. Ohio Elections Commission, which described anonymity as a protected part of American political tradition. He said the Founders relied on anonymous speech and resisted efforts to force identification, a principle that should still matter when regulators assess digital privacy tools.
Privacy as a market and economic need
Industry voices also stressed that privacy is essential for basic economic activity on public blockchains. Katherine Kirkpatrick Bos, general counsel at StarkWare, said full transparency creates risks that traditional markets would never accept, especially for businesses operating on open ledgers.
She explained that asset managers cannot protect trading strategies if every move is public. Likewise, companies paying employees in stablecoins expose sensitive compensation data, and firms proving reserves risk revealing full balance sheets. In each case, the lack of privacy becomes a barrier to adoption rather than a safeguard.
Bos highlighted zero-knowledge proofs as a practical solution. She described selective disclosure systems that confirm facts without revealing excess data, such as proving legal age without sharing a home address. Her broader point was that regulators have built a negative link between privacy and crime, even though privacy tools can reduce risk while preserving compliance.
Builders and users push back on surveillance assumptions
Zooko Wilcox, founder of Electric Coin Company and now chief product officer at Shielded Labs, also defended privacy-focused blockchain design. He described Zcash as a system built to give users choice, allowing private transactions without removing accountability or compliance options.
Former CFTC commissioner and current Blockchain Association CEO Summer Mersinger warned against expanding government control as a default response. Drawing from her regulatory experience, she said agencies often look to other agencies for solutions, even when innovation in the private sector works better.
Mersinger pointed to digital identity as an example. She said systems that let users decide what information to share are more effective than blanket data collection. According to speakers, the core issue is no longer whether privacy tools exist, but whether regulators will allow them to develop without assuming criminal intent.
Together, the arguments framed privacy as a legal right, an economic requirement, and a design choice rooted in American tradition. The debate now centers on whether regulators will adapt to that reality or continue to treat privacy itself as a red flag.
Source: https://coinpaper.com/13137/privacy-is-not-a-crime-crypto-leaders-challenge-sec-at-surveillance-roundtable
