“Introducing “Smart Bouncers” and Selective Transparency: A Proactive Solution to Mitigate the Bold FinCEN Proposal”

The question of whether to reveal or withhold data on the blockchain is becoming increasingly important. While transparency and immutability can limit the control of data by powerful entities, individuals still desire personal ownership. Therefore, a balance must be struck.

Is it unrealistic to want both? People want the power to access information without being controlled by monopolies, but they also want some autonomy over their own data.

Fortunately, crypto mixers have allowed individuals to regain ownership of their transactional data. However, this has led to a mixing of clean and dirty transactions, which has attracted the attention of regulators. The Financial Crimes Enforcement Network (FinCEN) has proposed regulating crypto mixers as a primary concern for money laundering. Incidents involving the financing of Hamas and the use of Bitcoin in human trafficking have highlighted the need for action.

While intervention from FinCEN is justified, it could result in excessive reporting and inconsistencies that penalize innocent economic activity. The Blockchain Association has warned that overbroad anti-money laundering requirements could drive digital asset businesses to less regulated countries, limiting law enforcement’s access to information on suspicious activity.

A blanket crackdown on exchanges, mixers, and protocols could do more harm than good. Compromise is needed, but middle-of-the-road solutions are not sufficient.

The responsibility lies with those involved in the blockchain space. Chainalysis has reported a decrease in cryptocurrency crimes, but there is still work to be done. Prevention should be the priority, and smart contracts informed by Chainalysis can act as intelligence officers guarding the ecosystem’s doors. By immediately checking all transactions received by a wallet, illicitly sourced funds can be exposed and redirected, preventing their entry into the ecosystem.

Selective transparency can also be implemented as a cure. Innocent users should have the ability to decide which data points they reveal or conceal. By filtering and obfuscating transaction details, users can maintain privacy while sharing information with trusted parties.

Instead of protesting against interference from centralized crime enforcement, the Web3 community should take responsibility. The involvement or non-involvement of external regulators is in their hands.