Commodity Futures Trading Commission Commissioner Christy Goldsmith Romero has prompted crypto companies to verify the digital identity of users, speaking that Congress is considering new acts addressing anonymity and digital identity.
A commissioner of the United States Commodity Futures Trading Commission (CFTC), Christy Goldsmith Romero, has offered to reduce the anonymity of cryptocurrencies as a shift of managing the threats associated with digital assets. The statement was made during the keynote address on Illicit Finance and Other Key Threats of Digital Finance at City Week 2023 in London on April 25.
Romero stresses the need for governments and the industry to tackle the immediate feature that makes cryptocurrencies appealing to illicit finance — anonymity. In her address, Romero told that the threats associated with digital assets must be handled, as market integrity, national security, and financial stability are key and can not be compromised.
Reducing illicit finance threats in the cryptocurrency market requires addressing the challenge of identity verification, Romero told. Although the public blockchain offers some transparency and traceability, the use of mixers and anonymity-enhancing technology increases the potential for substantial threat, she added. In her words:
“It is possible for all crypto companies to distance themselves from mixers and anonymity-enhanced technology, while still appropriately providing financial privacy for customers.”
A crypto mixer is a service that blends the cryptocurrencies of numerous users together to confuse the origins and owners of the funds. Because Bitcoin, Ethereum, and utmost different public blockchains are transparent, this position of privacy is else hard to achieve.
While speaking about the need for identity verification, Romero pointed out that two mixers — Blender and Tornado Cash were newly sanctioned by the United States Treasury Department. According to her, Tornado Cash was allegedly concerned with laundering $7 billion, involving millions of dollars stolen by Lazarus Group, a North Korean state-sponsored hacking group that has been involved in cyberattacks to aid illicit nuclear and ballistic missile programs.
Romero stated that crypto firms can maintain financial privacy for their customers without depending on mixers and anonymity-enhancing technology. She remained by stating there's a distinction between financial privacy and anonymity. Traditional finance (TradFi) ensures financial privacy by verifying the client’s identity through Know Your Customer (KYC), Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) measures, without depending on anonymity-enhancing technology.
Related: OFAC sanctions OTC traders who converted crypto for North Korea’s Lazarus group
Romero encouraged the verification of digital identity, urging exchanges as well as decentralized finance (DeFi) stages to verify the digital identity of users. She aimed out that, further more frequently than not, DeFi services aren't completely decentralized but rather maintained by central parties who could verify identities and may be held accountable for doing so.
According to the commissioner, there are existing technologies to give digital identity, and further are being developed. Congress is similarly considering new laws addressing anonymity and digital identity. The U.S. government will remain to prioritize preventing crypto’s use for illicit finance.
(AMAKA NWAOKOCHA, Cointelegraph, 2023)