Crypto’s Latest Privacy Battle

Traditional financial institution customers are undeniably affected by this situation, but it’s essential to note that privacy concerns could significantly impact participants in the digital asset economy as well.

Marisa Coppel holds the position of legal head at the Blockchain Association. In contrast, Amanda Tuminelli functions as the chief legal officer for the DeFi Education Fund, overseeing its significant litigation and policy initiatives.

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The CAT, or Consolidated Audit Trail, is engineered to amass and archive intricate customer data from financial markets across the United States. It will represent the most comprehensive database of securities transactions ever constructed. While marketed as a tool for regulators to efficiently monitor and accurately record all trading activities within the U.S., the CAT raises concerns about potential mass, unchecked government surveillance.

As a crypto investor, I understand that under the SEC’s CAT (Consolidated Audit Trail) regulations, entities operating in the financial markets are required to gather extensive data about trades, traders, and retail customers. For digital asset market participants like myself, this information may include transaction identifiers and wallet addresses, providing those with access to the database a clear view into users’ past and future transactions for an extended period.

The repercussions for the digital asset sector are cause for concern, amplified by the recent completion of Dealer rule-making, which the Blockchain Association and others are contesting in federal court. This worry intensifies if the SEC approves the proposed regulation expanding the definition of a “exchange” significantly.

As a crypto investor, I would express it this way: If these new regulations are implemented, any individuals or platforms classified as “dealers” or “exchanges” in the digital asset space will need to disclose user information to the Commodity Futures Trading Commission (CFTC).

As a crypto investor, I’m concerned about recent developments regarding the Securities and Exchange Commission (SEC) and its ability to access vast amounts of cryptocurrency trading data and personal customer information through the Consolidated Audit Trail (CAT). This level of data collection is unprecedented, and it’s disconcerting that this sensitive information isn’t limited to the SEC.

Previously, William Barr, who served as the Attorney General, voiced apprehensions regarding potential infringements upon constitutional rights due to CAT (Constant Surveillance Technology). He stated, “The Constitution forbids widespread monitoring of personal activities just because someone might be planning a crime … When the authorities demand information about an individual, they typically need to demonstrate that they are investigating suspected misconduct.”

Despite the SEC’s silence on this matter, one cannot find any indication of how they intend to uphold individual constitutional rights.

As a crypto investor, I’ve closely followed the concerns raised by SEC Commissioner Hester Peirce regarding CAT (Consolidated Audit Trail) for some time. She has repeatedly warned against the potential threats to individual liberty and privacy that come with unchecked surveillance. In my view, the costs of such monitoring outweigh any supposed benefits. After all, keeping tabs on our trading activities won’t prevent market mishaps from occurring; it merely makes it easier to analyze the situation after an incident has taken place.

As an analyst, I cannot stress enough the significant security risk posed by this database, given its status as a veritable treasure trove of information and the heightened interest it garners from hackers due to privacy concerns. The Securities and Exchange Commission (SEC) acknowledged this threat in their 2020 proposal aimed at bolstering the database’s security. However, the SEC has yet to enact changes to the Consolidated Audit Trail (CAT) that would fortify its cybersecurity defenses. Organizations such as the Securities Industry and Financial Markets Association (SIFMA) have voiced their concerns, but action remains elusive.

See also: SEC’s Gensler Going Rogue in Solo Quest to Stop U.S. Crypto Regulation | Opinion

The SEC’s introduction of the Consolidated Audit Trail (CAT) database has led to two lawsuits against the agency. In October 2023, the American Securities Association and Citadel filed a lawsuit in the 11th Circuit, while the New Civil Liberties Alliance brought a complaint before the Western District of Texas in April 2024. These legal actions serve as stark reminders of the crucial role of the judiciary in preventing excessive government intervention. The crypto community, in particular, should be alarmed by CAT’s potential conflict with their fundamental values and privacy concerns shared by all Americans.

It’s important to uphold the notion that privacy is a fundamental aspect of individual autonomy. We must avoid slipping back into a culture where privacy is synonymous with suspicion, particularly in the realm of personal finances. The fear of being constantly monitored by authorities should not be a reality, especially when confidential information is being exchanged – for instance, through charitable contributions or medical expenses payments.

Beyond serving as amici curiae in the cited legal disputes, the crypto community should express our objections to this new regulatory initiative, CAT, by contacting our elected representatives. Broad financial monitoring systems like CAT pose a serious risk to Americans’ constitutional freedoms and must not be allowed to pass unnoticed into legislation.