The Blockchain Association, whose members include early-stage investors, exchange platforms and virtual currency infrastructure providers, called it an “unprecedented and untested expansion of the Bank Secrecy Act.”
“It is one thing to know your customer, and quite another to know your customer’s customer or counterparty,” it said. “That is not just a difference in degree, but a difference of kind.” Demanding this kind of information turns a cryptocurrency business into a regulator of downstream transactions, it said.
Lack of information-gathering system
Businesses argue that there are no existing systems for obtaining the information required. This would force them to either quickly develop new and untested processes or stop facilitating third-party transactions to avoid triggering the rule.
In the latter case, the rule would “likely operate as a de facto ban on financial institutions transacting with self-hosted cryptocurrency wallets,” the Blockchain Association said. It also impinges on consumer privacy and the Fourth Amendment protections against unreasonable searches because it would allow the government to monitor individuals’ financial transactions at “an unprecedented level,” it said.
Cryptocurrencies like Bitcoin use blockchain technology to permanently record transactions on public ledgers accessible to anyone with an internet connection, although the individuals conducting those transactions remain anonymous.