Once again, we're seeing government bodies prove not understanding the essence of crypto and decentralized blockchains.
One might challenge that this isn't ignorance by suggesting that it is actually a bold statement that the establishment really doesn't care about the purpose of this tech and will consistently make efforts to try and regulate it.
The regulation of crypto and decentralized finance (DeFi) is something we've discussed extensively for years and every time we point it out that the designs of these systems are simply anti-external regulation.
Governance is already built into crypto and DeFi. The easiest and only intended path to having an influence is by coming on-chain through the designed means to do so. For proof of stake chains, this involves buying and staking the native asset for governance influence.
Knowing this, when the US Treasury comes out to seek public feedback on forcing KYC into smart contracts in the name of “fighting crimes,” it is rather too comical.
The Treasury is considering embedding digital identity checks into DeFi smart contracts as part of its GENIUS Act consultation on crypto compliance tools.
The US Department of the Treasury is seeking public feedback on how digital identity tools and other emerging technologies could be used to fight illicit finance in crypto markets, with one option being embedding identity checks into decentralized finance (DeFi) smart contracts.
The consultation, published this week, stems from the newly enacted Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), signed into law in July. – Cointelegraph report
What the Treasury is proposing or weighing here would quite simply limit innovation (if successful in the slightest) and will be pushed against.
First off, smart contracts are independently created, not controlled by a single body that would simply seek compliance. So if you want to embed KYC into smart contracts, you're looking at literally going after millions of contract deployers globally, of which many, you'll never know who they are, so, well, good luck.
Also, this appears to completely miss that there ares blockchains without smart contracts, so how would anyone go about plugging in the KYC layer in this case?
Any attempts to make this a reality turns our industry into a permissioned system, the opposite of what it is designed to be.
It is increasingly evident that the ecosystem has to push forward to buy solutions that drives this tech to a level of autonomy that makes it significantly costly for any government to try to regulate.
Investing in privacy tech has never been more important.