Regulating Bitcoin Miners? Experts Give U.S. Congress a Bad Idea

On September 4, according to foreign media CoinDesk, an expert witness will tell a U.S. Senate subcommittee today that cryptocurrencies help facilitate human trafficking and should therefore be subject to stricter regulation.

David Murray, vice president of product development and services at the Financial Integrity Network, suggested in written testimony that Congress should create a new class of regulated financial institutions called "virtual asset transaction validators" (i.e., cryptocurrency miners).

Like other financial institutions, these validators must know who they are dealing with.

“For these important participants in cryptocurrency transactions, this regulatory regime would emphasize due diligence by counterparty financial institutions,” Murray wrote in testimony released ahead of the hearing.

(David Murray, Vice President of Financial Integrity Network)

Murray said:

“The lack of system-wide financial crime compliance (FCC) for some existing cryptocurrencies allows criminals to operate and makes it difficult for the United States to isolate rogue service providers from the U.S. financial system.”

Murray, who served as director of the U.S. Treasury Department’s Office of Illegal Finance, believes that miners must at least manage who can participate in the network and review any issuers, exchanges or custodians they serve.

Murray said that mining is not currently regulated under the Bank Secrecy Act, but if virtual asset transaction validators were brought under the scope of the BSA, they could be the gatekeepers of the virtual asset system.

Such a proposal would be a dramatic change for public blockchain networks, which are currently open to anyone without permission. But in Murray's view, the openness of these systems makes them vulnerable to human trafficking.

He said:

“The trend toward decentralized and autonomous systems threatens our ability to control access to the U.S. financial system.”

It is reported that two other expert witnesses at the hearing - Nebraska Attorney General Douglas Peterson and Nebraska Senator Julie Slama - also mentioned the use of cryptocurrencies in human trafficking in their prepared speeches.

It's a ban, and a bad idea.

Peter Van Valkenburgh, director of research at Coin Center, a Washington-based cryptocurrency think tank, said that regulating miners as Murray describes would be tantamount to banning them from participating in public blockchain networks.

Van Valkenburgh told CoinDesk:

“It’s considered regulation, but it’s actually a ban on Americans or businesses from using open blockchain networks because it would require them to use them on a permissioned basis. It’s just a ban on all types of technology in cryptocurrencies.”

Murray even acknowledged this in his testimony, writing:

“Imposing regulation on the people and entities that perform these functions would almost certainly make it difficult for some existing blockchain-based payment systems to continue to operate as they do today.”

Van Valkenburgh pointed out that anonymous cash payments are currently used legally, but they are a favorite tool of criminals, and he concluded:

"The Internet is used for all kinds of crimes, but if in 1998 we had said, 'Let's ban the Internet because it's being used for crime,' the United States would have been hit hard."