A law should be put in place to allow federal courts to identify cryptocurrency owners and reverse transactions where necessary, according to Democratic Rep. Bill Foster of Illinois, the co-chair of the House blockchain caucus. He said the law should allow courts to establish the real identity of a crypto wallet owner when needful, through a “very heavily guarded key.”
Speaking in a Tuesday Axios virtual event, Foster said the pseudo-anonymous nature of cryptocurrencies should empower regulators to check if transactions are fraudulent. He said this could help protect investors, citizens, and the government against crime and ransomware attacks.
“I’ve just said about three things there that will drive the crypto purists berserk, like the trusted third party and so on. But in fact, there’s not a technological alternative that I’m aware of,” Foster said. “For most people, if they’re going to have a big part of their net worth tied up in crypto assets, they’re going to want to have that security blanket of a trusted third party that can solve the problem.”
According to Foster, cryptocurrencies must comply with federal regulations and laws if they are to become mainstream. Otherwise, they will always be associated with criminal activities.
“We’re going to have to establish a law between the legal and illegal regimes here,” Foster said. “There’s a significant sentiment, increasing sentiment, in Congress that if you’re participating in an anonymous crypto transaction that you’re a de-facto participant in a criminal conspiracy.”
Currently, there are many difficulties in identifying cryptocurrency owners. To do so, one would have to study the wallet address transaction history. They would also have to search the internet widely for possible linkage between the wallet address and any real-world personal information like names, phone numbers, and emails. This is made more difficult by privacy coins which promote total anonymity.
Many are not opposed to regulation to protect investors and prevent the use of crypto by criminals. During the event, the CEO of CoinFlip, Ben Weiss commented about crypto regulation by governments.
“I think regulatory clarity and shroud regulation but smart regulation actually is good for the industry,” he said. “It will give people the confidence they need to be involved with Bitcoin.”
However, anonymity is a feature adored by many cryptocurrency enthusiasts and supporters. For many, crypto should allow for transactions that are impossible to track because that intricate feature also makes it hard for governments to censor and manipulate the crypto economy. It also makes crypto easily and vastly available to anyone since, unlike the bank, users do not have to be subjected to detailed identity verifications. It sets it apart from other currencies.
Unfortunately, the long detailed identity verifications coupled with costly third-party middle-men that Foster is calling for, are a huge barrier for many people willing to access traditional banking services even in the US.
Currently, it is not entirely impossible to identify owners of cryptocurrency by their real-world identities. This is because most cryptocurrency exchanges require crypto wallet owners to verify identity with their real-world identity documents. However, even in cases where transactions are private, all the wallet transactions are available openly to the public through blockchain explorers. What is usually in contention is the requirement to link real identities to wallet addresses.