Reducing Anonymity in Crypto Would Manage Risks Involved

CFTC Commissioner proposes reducing anonymity could solve significant risk issues.
Romero was speaking at City Week 2023 in London.

Further tightening the grip on the crypto industry, Congress is now considering new laws addressing anonymity and digital identity. Furthermore, the CFTC Commissioner suggested that reducing anonymity in the crypto industry could help manage the risks associated with digital assets.

CFTC Commissioner Suggests Reduction in Anonymity

Christy Goldsmith Romero, a commissioner of the United States Commodity and Futures Trading Commission (CFTC), gave keynote speech on Illicit Finance and Other Key Risks of Digital Finance at City Week 2023 in London on April 25, 2023.

During the speech, Romero stressed the need for regulators and governments to tackle the root cause exploited by the wrong players to carry out illicit activities – anonymity. She also referred to other risks associated with digital assets, which should be managed, like market integrity, national security, and financial stability.

Reducing the risks of the illicit finance crypto industry requires addressing the challenge of identity verification. However, public blockchains offer a certain level of transparency and traceability; mixing mixers and some anonymity-enhancing technology increase the potential risks.

Romero stressed that crypto companies can still provide financial privacy to customers without using mixers or anonymity enhancement tools. Mixers are services that mix or blend cryptocurrencies of multiple users, which confuse the origin of funds.

She named two mixers, Blender and Tornado Cash, both of which were sanctioned by the U.S. Treasury Department. Tornado Cash was apparently involved in laundering about $7 Billion, including millions of dollars stolen by Lazarus Group, a North Korean state-sponsored hacking group.

Stating the difference between financial privacy and anonymity, she said that Traditional Finance (TradFi) ensures financial privacy by applying know-your-customer (KYC), Anti-money laundering (AML), and Countering the Financing of Terrorism (CFT) measures. They do not rely on anonymity-enhancing technology.

The commissioner suggested digital identity verification and urged exchanges and Decentralized Finance (DeFi) platforms to verify and maintain the digital identity of its users. Many DeFi platforms must be fully centralized and governed by a central body. This body can be tasked with carrying out the identification process and be held accountable for it.

Multiple technologies provide digital identities, and numerous more are under development.

The U.S. Crypto Scenario

The U.S. Securities and Exchange Commission is constantly attacking crypto entities, and many feel that the market conditions are hostile. Coinbase was given Wells Notice regarding the sale of unregistered securities. The Ripple vs. SEC case has been ongoing since December 2020, where the authority is trying to prove XRP is a security and Ripple is fighting back.

If the SEC wins and Ripple is proven to be a security, many more crypto tokens would come under securities, and their issuers would have to line up to register with the SEC. However, both entities have submitted the required documents and testimonies and are awaiting results.

Regulators and lawmakers are trying to cut the sharp edges of crypto and make it suitable and easy to use for the general user.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing