The Secret Service is increasing its global crypto enforcement efforts. That vision is being advanced by passionate teams like the GIOC and individuals like Kali Smith. No one wants to see billions go up in smoke via complicated fraud schemes — particularly when they do so at the expense of the most vulnerable among us. The estimated $9.3 billion in losses from crypto scams just in 2024 so far is mind-blowing. What about the recovery of $400 million in crypto assets? That's a win. Before we rush to write the “good guys win” narrative, hold your horses.
The aim of this crypto crackdown is principled and idealistic. If we don’t manage it right, it can cause some really awful impacts. We need to ask ourselves: are we trading short-term gains in scam prevention for long-term damage to innovation, privacy, and international relations? I think it’s a question worth exploring.
Innovation Stifled By Overzealous Enforcement?
Now imagine you’re that same young entrepreneur with a DeFi application that’s never been tried before. You’re not just making a cool DApp—you’re making lending, or insurance, or even voting all that much better. Yet at the same time you’re deeply cognizant that the regulatory landscape surrounding crypto is a veritable minefield. Get it even slightly wrong, and you might find yourself in serious trouble with the Secret Service. One day you may find yourself being charged with money laundering or materially assisting an illegal operation.
I suspect many would not. That’s because the chilling effect of overzealous enforcement is huge. It’s akin to trying to grow a rare orchid in the path of an oncoming hurricane. You just may help identify a scammer weathering the storm. You’ll just be blowing up tons of great projects while you’re at it. The US and its allies are at great peril. If they fail to move fast, they risk ceding leadership in the developing crypto landscape to jurisdictions with weak regulations that do not protect consumers or uphold our ideals. We might accidentally lead the next Google or Amazon of the crypto universe to establish operations beyond our borders. This will only be the case if we continue to foster an environment that squelches innovation and makes it too dangerous to succeed here. Is it worth that price to catch a few more scammers? I’m not so sure.
It’s not because we want to protect “crypto bros” or libertarian ideals. It's about fostering a technological ecosystem that can create jobs, drive economic growth, and solve real-world problems. By elevating enforcement to number one above all else, we might end up throwing the baby out with the bathwater.
We can’t blame the Secret Service for pursuing a strategy to track and seize crypto assets that focuses primarily on data collection and analysis. We are working collaboratively and creatively, including deploying software, subpoenas and lots of spreadsheets to track the money through the blockchain. Though this is an amazing tool for apprehending offenders, it presents profound implications to privacy.
Data Privacy Sacrificed at the Altar?
Think about it. This aspect of crypto is true—every crypto transaction is recorded on a public ledger. With this capacity, the Secret Service is effectively creating a nationwide database of every financial transaction. Who has access to this data? How is it being stored? And how do we ensure the technology is not misused?
I fear that the tools and techniques being developed to combat crypto crime could easily be turned against ordinary citizens. The boundary between tracing terror money and surveilling regular citizens is a blurry one. To some, the temptation to overcome that barrier will prove irresistible. We need to ask ourselves: are we comfortable with a world where the government has the power to track every single crypto transaction we make? Even if we assume we have nothing to hide, the ways it could be misused is very frightening.
This isn't about enabling criminals. This is not just about protecting federal employees from surveillance – it’s about safeguarding our fundamental right to privacy in the digital age. Join us to demand increased transparency from police departments. In return, we need to pry open their opaque data collection methods and hold them accountable for their surveillance practices. The alternative takes us further down a dangerous slippery slope. It would establish a surveillance state in which the government can monitor every aspect of our financial lives. That’s a cost I’m not willing to incur.
The Secret Service’s worldwide effort to stop crypto scams includes training law enforcement officials and prosecutors in more than 60 countries. While this may seem like a benevolent effort to help other nations fight crime, it raises questions about sovereignty and international relations.
International Relations: A Crypto Cold War?
Are we just dismissing the legal frameworks and regulatory approaches of other nations? Or are we just forcing our own definitions and priorities onto them? What do we do when the Secret Service’s investigative activities necessarily conflict with the laws or policies of a foreign country?
Imagine a scenario where the Secret Service is training law enforcement in a country that has a more relaxed attitude towards crypto regulation. Maybe the Secret Service is just giving them lessons on how to identify assets. All of these assets would be perfectly legal under local law. This would stoke disappointment and bitterness, driving a wedge into our historic alliances with our closest partners and allies.
Furthermore, the Secret Service's training programs often target countries with "weak oversight or residency-for-sale programs." This sounds an awful lot like applying our sanctions regime to countries that aren’t in lock-step with our political priorities or economic interests. Are we weaponizing crypto enforcement as a tool of foreign policy? Are we just trying to strong-arm other countries into accepting our regulatory regime?
This is not to say that we should shield rogue states or support other nefarious conduct. It means properly respecting the sovereignty of other nations and promoting true international engagement and cooperation. We need to take a much more subtle and diplomatic approach to crypto enforcement. Only time will show that we should acknowledge the special reasons and visions of every nation. The other option is a crypto cold war. Countries will be divided not by wealth, and the struggle against violence will be loaded to the back by intensifying geopolitics.
We need a balanced approach in crypto scam enforcement. We should embrace the real demand for change, but ensure we are not creating any unintended harm. This means:
This approach shortchanges the Secret Service’s meritous efforts to combat crypto crime. We need to make sure that our efforts do not make things even worse. Let’s be mindful about how our movements might backfire. By taking a thoughtful guardrails and guide innovation approach, we can achieve robust consumer protection, encourage innovation, and advance our foundational equity goals. The future of crypto, and maybe the future of finance itself, is counting on it.
We need a balanced approach that acknowledges the legitimate need for crypto scam enforcement while also mitigating the potential for negative consequences. This means:
- Clearer Regulatory Frameworks: Provide clear and consistent rules for the crypto industry, reducing the risk of accidental violations and fostering innovation.
- International Cooperation on Data Privacy: Establish international standards for data privacy and security, ensuring that law enforcement agencies are held accountable for their data collection practices.
- Consumer Education: Invest in educating consumers about crypto scams, empowering them to protect themselves from fraud. The Secret Service has clearly identified that scam victims often believe they can use Bitcoin and be safe, but this is not the case. This perception needs to be addressed through targeted educational campaigns.
The Secret Service's efforts to combat crypto crime are commendable. But we must ensure that these efforts are not counterproductive. By carefully considering the potential backfires and adopting a more balanced approach, we can protect consumers, foster innovation, and preserve our fundamental values. The future of crypto, and perhaps the future of finance itself, depends on it.
