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- The “Cryptocurrency Enforcement Framework” recognizes the potential and risks associated with cryptocurrencies such as Bitcoin (BTC).
- It identifies the DeFi space and privacy coins as part of its biggest challenges.
The U.S. Department of Justice has published a report that could serve as a guide to shape the future vision of authorities and regulators in the country towards Bitcoin, Ethereum, XRP and other cryptocurrencies. The document is entitled “Cryptocurrency Enforcement Framework” and has been written by the Cyber Digital Task Force, formed in 2018 by U.S. Attorney General William Barr.
The report is 83 pages long and can be divided into 3 parts: risks of cryptocurrencies, laws and regulation, as well as future measures towards cryptocurrencies. In this way, the document is complementary with a previous report that had the objective of identifying the risks associated with the “increasing use” of cryptocurrencies.
In the first part of the current report, the Department of Justice addresses the emergence of the “next phase of the Internet’s evolution,” known as Web 3.0. The report recognizes that in this era, technology will allow users to have greater control to protect their information and identity from companies and governments.
In that sense, the report also acknowledges cryptocurrencies as “a medium of exchange” characterized by offering individual control and privacy to its users. In addition, it identifies blockchain technology as a fundamental part of the decentralized operation of cryptocurrencies:
This Enforcement Framework suggests that, however liberating the emerging glimpses of the Web 3.0 might seem to be, that vision also can pose uniquely dangerous threats to public safety. Confronting and addressing those threats is what good public policy should do—and what the crypto ecosystem itself may have to do, if its vision of the future is ever fully to take hold.
US DOJ challenges DeFi and privacy coins
With regard to the challenges that the Authority recognizes in applying existing laws, the report notes that the advent of decentralized finance has added “an extra layer of complexity” to the institution’s tasks. In addition, the DOJ point out that blockchain technology has allowed crime to spread more easily globally. In conjunction with this, the report indicates that DeFi applications, privacy coins, and peer-to-peer exchanges have the potential to continue to make “legitimate” financial transaction scrutiny more difficult.
Monero, Zcash and Dash are rated as anonymity enhanced cryptocurrencies (AEC). The DOJ claims that their use has increased in the darknet. Therefore, the report considers this class of cryptocurrencies particularly useful for evading anti-money laundering regulations. However, the report acknowledges that there are other AECs that have features that, contrary to those mentioned, could facilitate compliance with AML/CFT regulations.
In general, the report moves between two points: cryptocurrencies have the potential to be a positive change in the world, however, on the other side, they are used for crime and should therefore be regulated. The Department of Justice indicates that its cooperation with other federal entities (CIA, NSA, IRS, FinCEN, SEC, CFTC) will continue to prevent criminal activities related to cryptocurrencies.
In the crypto space, Ripple CEO Brad Garlinghouse’s response to the report has been one of the most severe. Garlinghouse called the report a long and contradictory document. Ripple’s CEO noted that “many private players” are trying to stick to the regulations, but find the task increasingly difficult. Garlinghouse concluded by reinforcing the possibility of Ripple moving its headquarters to another country:
We need a framework (like #DCEA) that provides clarity, protects consumers AND fosters innovation in the United States or companies will move their investment (or whole company) overseas.
