• Senators Elizabeth Warren (D-MA) and Roger Marshall (R-Kan) have introduced the Digital Asset Anti-Money Laundering Act Of 2022, which would require custodial and self-custodial wallet providers and miners to implement know-your-customer (KYC) systems.
• The bill would also prohibit financial institutions from interacting with privacy tools such as CoinJoin, and would allow regulating bodies to file reports and surveil users without need for a warrant or government request.
• According to the blockchain advocacy group CoinCenter, this bill is “the most direct attack on the personal freedom and privacy of cryptocurrency users and developers we’ve yet seen.”

Senators Elizabeth Warren (D-MA) and Roger Marshall (R-Kan) have proposed the Digital Asset Anti-Money Laundering Act Of 2022. If enacted, this bill would have sweeping impacts on the privacy of bitcoin users. It would require custodial and self-custodial wallet providers and miners to implement know-your-customer (KYC) systems and would prohibit financial institutions from interacting with privacy tools such as CoinJoin. This would limit the ability of users to maintain their privacy since CoinJoin allows users to use bitcoin in a way that more closely resembles physical cash, which is when the bank knows when a client withdraws cash at an ATM, but has limited knowledge of what any user does with it afterwards.

In addition to this, regulating bodies would be allowed to file reports and surveil users without need for a warrant or government request. This bill also calls for a “rule classifying custodial and unhosted wallet providers, cryptocurrency miners, validators, or other nodes who may act to validate or secure third-party transactions, independent network participants, including MEV searchers, and other validators with control over network protocols as money service businesses,” which would imply that Bitcoin nodes would be classified as such as well.

The Financial Crimes Enforcement Network (FinCEN) would be in charge of implementing the guidance if the bill passes, which blockchain advocacy group CoinCenter has deemed “the most direct attack on the personal freedom and privacy of cryptocurrency users and developers we’ve yet seen.” The passing of this bill would have a major impact on the privacy of bitcoin users, and could potentially hinder the development of new privacy tools and technologies.