Crypto regulation
Governments cannot control your wallet
Crypto regulations buried deep in an unrelated bill highlight the need for self custody.
No government has the power to stop people from using technology. No matter how difficult a state might make it to access, if it is useful then there will always be citizens who bypass restrictions. This week, the United States government aims to pass the Bipartisan Infrastructure Package (BIF), a bill intended to rejuvenate the country’s infrastructure and, for some bizarre reason, incorporated a set of restrictions on the use of cryptocurrencies in order to support its funding.
Strict regulations of the cryptocurrency sector are already in place in the USA, but the vague proposals laid out in this particular bill would expand requirements to a level that few parties could comply with. In its current form, it would decimate the nation’s blooming crypto industry and infringe on privacy rights. It is nothing short of gross incompetence by shadowy super-legislators who appear to understand nothing about Bitcoin and related technologies, let alone individual rights and freedoms.
“[the bill] contains a poorly crafted provision that could create new surveillance requirements for many within the blockchain ecosystem.” — Electronic Frontier Foundation
Cryptocurrencies have real potential to change the global economic landscape beyond recognition. Burying such significant changes to their regulation in this bill as a way to lighten the costs of unrelated projects shows a flippant disregard for a technology which could propel the USA back into pole position as the leading global economy.
Open source independence
When a technology is proprietary and centralized, it is easy to target the producer or maintainer and influence or terminate development. Open source projects like Bitcoin and Trezor do not exist in one place under the control of one fallible entity. They are collectively stored and maintained by the individuals, groups and corporations who use them. As a physical product, however, the hardware wallet supply chain can be targeted.
Attempts by legislators and other organizations such as the Financial Action Task Force (FATF) to restrict the use of cryptocurrencies will always fall short. Decentralized open source projects are by their nature tenacious thousand-headed beasts that can not be tamed by any government. Instead, it is the voting public who suffer at the hands of lazy lawmakers.
Given the absurd language and huge implications of the infrastructure bill, seeing it pass could spur more nations to adopt unrelated yet equally damaging FATF recommendations on regulating cryptocurrencies, which would be another huge loss for individuals’ rights to privacy. While being open source immunizes the code itself from being regulated, this would still restrict adoption, kill innovation and overall set back progress, all in the name of some unfounded narrative about targeting criminals.
Any regulation of cryptocurrencies should recognize not only their potential for improving financial lives of citizens, but also the additional limitations imposed on businesses who are willing to comply but more often than not are not given the tools to do so.
“There’s no support in enforcing these regulations, and you pay a lot of money for services to fulfill requirements. Everyone’s doing the same thing and creating their own tools to handle it, as there’s no central service to check on requirements, and it’s very ineffective. Pushing the cost onto the private sector is a huge burden.” — Roman Valihrach, Confirmo CEO
The open source community is driven by innovation, not checking legislative boxes, so the onus to provide reporting tools should lie with the government, long before any sweeping laws are passed.
How would the Infrastructure Bill affect hardware wallets?
Given the vague language used in this regulation, hardware wallet companies may be subject to pressure to provide confidential information about their customers. For SatoshiLabs, this would be impossible to comply with as minimal customer order data is collected and is not retained longer than 90 days.
Our responsibilities to our customers’ privacy and security are too great to accept such regulation should we be forced to adopt new reporting processes. Quite frankly, the company would likely rather shut down and let Trezor live on as the decentralized community-focused project it has always been. This would limit access to the critical security tools the space needs, but since the project is fully open source, more technically adept users could simply build their own.
The right to resist
There is nothing amoral about calling out power abuse. Refusing to comply with laws that infringe on human rights is the correct thing to do and there will be pushback from wallet operators, miners and developers across the industry should the bill be passed. The narrative will turn even more strongly against the cryptocurrency community but our supporters are growing and include Senators who see many benefits in Bitcoin.
Bitcoin is our best hope for transitioning to a more sustainable and fair economy that cannot be manipulated to favor the ruling elite. The BIF will likely have far-reaching and crippling effects on access to cryptocurrencies and any crypto-focused businesses operating with or dependent on US customers. It is an attack on the ecosystem and on digital privacy, one which overreaches and twists the narrative to such an extent that one would be forgiven for thinking the government actually has the power to enforce it. That is, for many reasons, not the case.
Nonetheless, it will negatively impact many honest and innovative US-based projects and have a knock-on effect around the globe. These laws will not have the desired effect. The real implications are that they will create thousands of highly-valuable troves of poorly-secured confidential data and exacerbate the growing problem of data breaches. Any government that passes half-baked crypto regulation is complicit in amplifying the effects of cybercrime.
Protect yourself from dangerous regulation
As a Trezor hardware wallet user there is no way for a regulator to identify you based on an address generated by your device unless you voluntarily provide that information. That includes using your wallet to receive funds from any exchange or service where you have submitted documents related to KYC and AML processes.
While it would be best to avoid such services entirely, it is much more difficult to do so nowadays. Consider using a mixing service such as CoinJoin before depositing your coins to cold storage.
Cryptocurrencies and the ways we interact with them are governed by mathematics. Random numbers are at the heart of this, and do not carry any personally identifying information. While there will be services that bow down to regulators and follow the law to the letter, there will always be alternatives available such as peer-to-peer purchases and anonymized networks.
Regardless of whether the regulation is passed in its current form, this bill is another warning. Withdraw any bitcoins from custodial services to self-custody and be selective about the ways you use them. Enable Tor in Trezor Suite to help protect yourself from observers and understand that it is your human right to protect yourself from laws which strip you of your privacy.
More regulation is coming. We can only hope that pro-crypto legislators’ interventions will minimize the harm done by this bill. In the meantime it is better to take the necessary steps to disconnect from custodial services such as centralized exchanges and start thinking seriously about the threats you are exposed to. A single data breach resulting from these laws could have life-changing consequences.
By no means do we condone breaking the law, but regulations in the crypto space continuously fail to protect investors and instead create new, easy to exploit attack vectors. People have the right to protect themselves from harm and using a hardware wallet can help. A deep lack of understanding of the industry is present in almost all legislation surrounding cryptocurrency — we welcome any questions from legislators who may benefit from our input on these matters.
