In order to manage the dangers related to digital assets, Christy Goldsmith Romero, a commissioner of the United States Commodity Futures Trading Commission (CFTC), has suggested lowering the anonymity of cryptocurrencies. It was stated on April 25 in London at the opening keynote address of City Week 2023, which focused on illicit finance and other important risks of digital finance.
Romero stated in her address that managing the risks connected with digital assets is necessary because market integrity, national security, and financial stability are essential and cannot be jeopardised. Romero emphasises the importance of addressing the main aspect of cryptocurrencies that attracts illegal money, namely anonymity, by both governments and the sector.
According to Romero, solving the identity verification problem is necessary to lowering the dangers associated with illegal funding in the bitcoin market. In order to conceal the sources and owners of the cash, a crypto mixer is a service that combines the cryptocurrencies of several users.
She warned that the employment of such mixers and anonymity-enhancing technologies raises the possibility for significant danger even while the public blockchain provides some transparency and traceability. This kind of anonymity would ordinarily be challenging to get due to the transparency of Bitcoin, Ethereum, and the majority of other public blockchains.
Reflecting on Romero’s words, “It is possible for all crypto companies to distance themselves from mixers and anonymity-enhanced technology, while still appropriately providing financial privacy for customers.” She asserts that without the use of mixers and other technologies that increase anonymity, crypto firms can protect their clients’ financial privacy.
Blender and Tornado Cash, two mixers that the US Treasury Department recently sanctioned, were brought up by Romero when discussing the necessity for identity verification. She claims that Tornado Cash participated in the laundering of $7 billion, including millions of dollars that were taken by the Lazarus Group, a state-sponsored hacker organisation from North Korea that has carried out cyberattacks to support illegal nuclear and ballistic missile programmes.
There is a difference between financial privacy and anonymity, she continued. Without relying on technology that increases anonymity, traditional finance (TradFi) ensures financial privacy by confirming the customer’s identity through Know Your Customer (KYC), Anti-Money Laundering (AML), and Countering the Financing of Terrorism (CFT) methods.
Exchanges and decentralised finance (DeFi) platforms were urged by Romero to validate users’ digital identities in order to promote the authentication of digital identity. In many cases, DeFi services are not truly decentralised but rather are maintained by central parties that might verify identities and may be held accountable for doing so.
The commissioner claims that there are already technologies in place to enable digital identity, and more are being created. Additionally, Congress has been considering new legislation on digital identity and anonymity. The existing scepticism around cryptocurrency in the government is one of the primary reasons for the country to be slow in its developments. Therefore to not ignite the fire, preventing the use of cryptocurrency for criminal funding will remain a top priority for the US government.