U.S. is weighing stablecoins as a surveillance mechanism
Treasury.
****Privacy vs. security****
The Treasury is going to fight against illicit activity by introducing zero-knowledge digital credentials to DeFi users, according to Timothy Massad, the former Chairman of the Commodities Futures Trading Commission. The credentials will mask data from all, but the information will be accessed via authorities' requests. Without credentials, smart contracts would not execute transactions, Massad said.
In an article devoted to myths of privacy on blockchain, David Sverdlov and Aiden Slavin from a16z ventured that combat of illicit on-chain activity comes only in the expense of privacy infringement. They enumerate potential privacy trade-offs. Consumers may perhaps be required to give voluntary and involuntary selective de-anonymization of transaction information in order to establish the authenticity of transactions or deposited funds. Other means involve withdrawal and deposit screenings.
the current dependence on known intermediaries in anti-money laundering does not cooperate efficiently with decentralized public blockchains. According to them, the blockchain information must be examined closely to combat money laundering.
develop an AML compliance score based on the risk of involvement of the transacted tokens in illegal activity. The score could be utilized in blocking or restricting transactions in the crypto-to-fiat exchanges via banks. The Rage reporter, Lola Leetz, asserts that the use of digital IDs for blockchain-based services will make permissionless networks permissioned ones.
ZeroHedge media equates AML compliance score with Chinese social credit points. It asserts:
"None of [this] should surprise anybody (unless you really believed that there would be no CBDCs in the US). We've long said we expect the on-ramps and off-ramps to be heavily regulated and KYC-ed as the crypto-economy becomes a bigger component of the global financial system."
Digital ID goes against past actions of the Trump Administration
President Donald Trump banned the creation, issuance, and distribution of the digital dollar by executive order on Jan. 23, 2025. Therefore, the world reserve currency was barred from going digital. While stablecoins pegged to the price of the American dollar, digital dollars would have been tokenized dollars.
The prohibition of CBDC was primarily justified by the government's fear for citizens' privacy, which might have been compromised if the U.S. permitted the establishment of the digital dollar.
USD stablecoins are offered as a private option against CBDCs, since stablecoins are not explicitly attached to the government. But it appears the U.S. government does not care about having a means for financial spying.
