FinCEN has extended the deadline for comments until January 7, while Chainalysis has submitted a letter assessing the risks of implementing such strict regulation in the crypto industry and highlighting the potential of blockchain.
So far, the United States Department of the Treasury, through the Financial Crimes Enforcement Agency (FinCEN)), continues to receive comments on its proposed regulation officially presented on December 23. In this, the regulator intends to establish new rules and KYC requirements on cryptocurrency transactions. cryptocurrencies, that are carried out from or to purses of self-custody, and gave a period of only 15 days to evaluate and analyze this new regulation. However, although the deadline presented by FinCEN was January 4, from the date of publication of its warning The deadline for the official submission of the notice in the Federal Register is 15 days from now, and the deadline actually expires on January 7. Interested parties have until Thursday to submit their comments, according to the website. regulations.gov.
For its part, Chainalysis, a renowned blockchain forensics and research firm, sent an interesting letter to the regulator, pointing out the potential risks that will increase considerably if the new regulations presented by the Treasury Department and FinCEN are applied. The letter signed by Chainalysis' Head of Strategy, Jonathan levin, and addressed to the Chairman of FinCEN, Kenneth Blanco, says that the centralization of data can exponentially increase the risk of hacking; he also stressed that thanks to the characteristics of networks based on blockchain, the government does not have to impose these regulations, as the data and transactions of interest can be verified openly and transparently.
The letter submitted by Chainalysis joins more than 6.000 comments that FinCEN has received from cryptocurrency companies and other stakeholders in the crypto community.
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Blockchain transparency allows data to be verified without the need for strict regulations
Since it became known Bitcoin, and its underlying Blockchain technology, experts have highlighted that one of its greatest qualities is transparency. Thus, any transaction that is carried out on a public network will be recorded and can be freely verified by anyone who wishes to do so, including the government and regulators. This is one of the qualities of cryptocurrencies that Chainalysis is highlighting in its letter, specifying that The US government does not have to establish a regulation to identify transactions in self-custody wallets, if you can easily access cryptocurrency blockchains to identify, in real time, the operations and transactions that you consider suspicious and of interest to you.
Chainalysis prides itself on being one of the most efficient companies in offering services to detect illicit activities in the digital industry, and that it has designed innovative solutions to identify and combat illegal behavior with cryptocurrencies, eliminate bad actors, and promote the interests of the United States in terms of national security. Likewise, the company affirms that its solutions are available to its partners and clients, which are very diverse and varied, so its tools and investigations remain neutral and focus on solving the problems of the industry, without being oriented towards one side or the other. Chainalysis offers research, analysis, software, and other services in more than 50 countries around the world.
Thus, based on its extensive experience, Chainalysis ensures that The government can use the transparency of blockchains to verify cryptocurrency transactions in real timeAnd if any suspicious transactions or questions arise, you can always contact exchanges, cryptocurrency companies, and other digital asset service providers (VASPs) to obtain more information about the transactions.
Risks to US leadership in the digital industry
In its letter, Chainalysis also claims that the Department's proposed regulations could undermine the U.S. nation's leadership in the digital industry, and as several congressmen and industry players have already pointed out, will give the competitive advantage to other rival nations, such as China and Russia.
“We also question whether these rules will negatively impact the effectiveness of the final regulations and create unintended consequences that harm U.S. interests.”
To the company, Data centralization jeopardizes privacy and increases data security risks, since by creating a centralized database, it will be more desirable for malicious actors, who will instantly create a hacking target. And like BitGo CEO Brian Davenport, Chainalysis senses that a similar situation will occur as with Ledger, where more than 1 million email addresses and 272.000 names, postal addresses, and phone numbers of this company's customers are being targeted by phishing attacks and constant physical threats, due to the leak of one of its databases that left users' information exposed. This scenario may repeat itself at FinCEN if a similar data leak occurs, endangering the lives of thousands of cryptocurrency investors.
Given this possibility, Chainalysis notes that this is a clear warning that storing cryptocurrency-related information, and its owners, presents new cybersecurity challenges that need to be carefully assessed.
Financial crimes with cryptocurrencies are very low
On the other hand, the blockchain analysis company cited that financial crimes carried out with cryptocurrencies are not as frequent or alarming as the government believes, so it considers that there is no real urgency to have to establish the new regulations so hastily.
The company highlighted that the results of recent analysis show that the majority of self-custody wallets are used for investment and medium- and long-term storage of funds, and that the incidence of financial crimes with these products is not significant for the industry. In fact, Chainalysis noted that, excluding 3 major Ponzi schemes, Illegal activity involving cryptocurrencies accounts for only 0,46% of the industry as a whole.
Negative consequences for the nation's leadership
Finally, Chainalysis says that imposing such rules on a decentralized, privacy-focused infrastructure like cryptocurrencies will create a negative effect for the industry, driving the use of unregulated platforms that will also put the security of investors and users at risk.
These statements were also made by Jack Dorsey, CEO of Square and Twitter, who expressed The expert also expressed his dissatisfaction with the regulations that the Treasury intends to impose, noting that these regulations will lead to more security breaches. In addition, the expert pointed out that these regulations require cryptocurrency service companies to go beyond their relationship with customers and to meddle in private information beyond what is necessary; something that even commercial banks do not do, nor are they required to do. Thus, the application of excessive regulations will hinder this nation's leadership in the digital industry.
Finally, with all the points made above, Chainalysis joins the request already made by many companies and companies in the industry, such as Coinbase, BitGo and more, and asks the Department to extend the deadline to a minimum of 60 days to evaluate the new regulations, and all their implications, in depth and detail; and to present real comments on the rule.
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