Senator Elizabeth Warren of Massachusetts has recently proposed the Digital Assets Anti-Money Laundering Act, which aims to regulate the cryptocurrency industry.
While the bill claims to protect consumers from scams, it could do more harm than good by driving cryptocurrency businesses overseas and limiting consumer choice.
Additionally, the bill seems to unfairly target decentralized finance (DeFi) and impose unreasonable regulatory burdens on software developers.
Warren’s proposal overlooks the fact that not all cryptocurrencies are used for purchases or openly traded. For example, Basic Attention Tokens (BAT) are earned by users of the Brave web browser for watching ads and can be exchanged with content creators for money.
It’s a closed ecosystem with no monetary value, yet the bill could regulate companies like Brave like banks or brokerages.
Furthermore, the bill requires self-hosted wallets and miners to have Anti-Money Laundering (AML) policies, which many may not be able to implement, forcing them to shut down or stop servicing American users. It also requires platforms to record personal information of DeFi users and submit it to the government without a warrant or probable cause.
Critics argue that the bill unfairly targets the cryptocurrency industry while traditional banks, which already have their own AML and related regulations, do not face similar scrutiny. It could drive legitimate users and businesses underground and increase criminal activity, as happened during alcohol prohibition in the 1920s.
Instead, a better approach would focus on regulating businesses involved in exchanging cryptocurrency for government-issued fiat currency, or on- and off-ramps, where ill-gotten money enters or disappears from the blockchain. This would be a more targeted and effective solution to combat money laundering and terrorist financing.
While the Financial Action Task Force recommends subjecting all crypto transactions to scrutiny, other countries are taking a more balanced approach, such as requiring hosted wallets to submit transaction information, or only implementing AML compliance for transactions over a certain amount.
