Last week was a watershed moment for Bitcoin and the crypto industry overall. It has been perceived as an attack on cryptocurrency usage especially when it comes to self-custody of funds and the notion of a money transmitter for intermediary blockchain services. All opinionated to lead to a ban on self custody which is one of the core principles of Bitcoin and other cryptocurrencies.
The U.S. Government contends that, according to FINCEN’s Money Services Business (MSB) guidelines, control over funds during transmission is not a requirement. They draw a rather unique comparison to explain their point: Just as a frying pan can transfer heat from the stove without having “control” over the contents it’s heating, a financial intermediary doesn’t need to control the funds it’s transferring. Essentially, the act of moving funds doesn’t necessitate exerting control over those funds in the regulatory sense.
FBI Warning
In what many see as part of a coordinated move against self-custody, the FBI has issued a Public Service Announcement on April 25, 2024, warning against the use of unregistered cryptocurrency money transmitting services. These services may be violating U.S. federal law, specifically 31 U.S.C. § 5330 and 31 CFR §§ 1010, 1022, regarding anti-money laundering regulations and requirements for Money Services Businesses (MSBs) to collect Know Your Customer (KYC) information.
The alert supposedly highlights risks associated with cryptocurrency money transmitting services that are not registered with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Using such services could potentially lead to legal issues for individuals, especially if these services engage in activities that facilitate illegal transactions and are subsequently investigated by law enforcement.
The FBI stresses the importance of verifying whether a cryptocurrency money transmitting service is registered as an MSB with FinCEN. To check registration, one can use the FinCEN MSB Registrant Search Web page, and users are advised to be cautious when dealing with services that do not collect adequate KYC information. It is notable to say, that due to regulatory hurdles very few blockchain services have a MSB registration with FinCEN.
The key “tips” from the FBI to protect oneself:
- Verify MSB Registration: Before using a money transmitting service, check its registration status on FinCEN’s website.
- Be Wary of Non-KYC Services: Avoid services that do not request or verify identification information, as this might be indicative of non-compliance with legal requirements.
- Understand the Risks: Recognize that possessing or transacting with cryptocurrencies that are linked to illegal activities carries inherent risks.
- Report Suspicious Activities: If you encounter or suspect fraudulent activities, report them to the FBI’s Internet Crime Complaint Center
The Samurai Wallet Case
Keonne Rodriguez and William Lonergan Hill, the founders of Samourai Wallet, have been charged with money laundering by federal prosecutors. The charges relate to the operation of Samourai Wallet as a crypto mixing service, which is said to have facilitated over $100 million from illegal dark web markets and around $2 billion in unlawful transactions since 2015. The wallet service, known for its privacy features, is alleged to have earned approximately $4.5 million in fees from its mixing services.
Rodriguez was arrested and is expected to be arraigned in Pennsylvania, while Hill was apprehended in Portugal and is facing extradition to the U.S. As part of the investigation, the Samourai Wallet website, hosted in Iceland, has been seized along with the mobile application on the Google Play Store. This action marks another significant move by U.S. authorities to address the use of crypto mixing tools that can be exploited to hide the transfer of funds related to illicit activities.
The legal proceedings against Samourai Wallet founders follow similar actions against other crypto mixing services, indicating an ongoing crackdown on financial activities through cryptocurrencies.
The Call for COPA’s Intervention
Beautyon’s commentary aligns with the gravity of the situation facing Samourai Wallet, urging for the Cryptocurrency Open Patent Alliance (COPA) to intervene. Drawing parallels with the historic Bernstein v. United States case, Beautyon argues that Bitcoin’s nature as purely mathematical operations performed by computers positions it squarely as a form of protected speech, much like cryptography has been established in previous legal precedents.
“That Is Not A Grouch,” the Bitcoin Magazine Technical Editor is expressing frustration and concern about what they perceive to be a miscarriage of justice. He is highlighting a sense of alarm that the Samurai Wallet founders are in custody with, as they see it, a lack of substantive evidence and poor analytics to support the charges. This sentiment is rooted in a deeper concern about the implications of such actions by government authorities and what it could mean for the broader cryptocurrency community, especially regarding the freedom and anonymity that has long been a fundamental principle for many in this space.
On the other hand, Adam Back, a notable cypherpunk and CEO of Blockstream, appears to be calling for a more measured response. He suggests that the reactions are overblown and cautions against unwarranted extrapolation of the situation. Adam seems to be advocating for a balanced analysis, warning that excessive alarm could be counterproductive.
Reflections on Past and Future Legal Battles
Douglas Matthew Stewart paints a dire picture of the recent actions taken against the founders of Samourai Wallet, framing it as a cautionary tale that extends far beyond the crypto community to the fundamental human right to privacy.
Stewart contends that the arrest of the Samourai Wallet founders represents more than just a crackdown on a crypto service. He sees it as an assault on privacy, suggesting the U.S. Department of Justice acted preemptively to stop the launch of a decentralized tool that would enhance the privacy of Bitcoin transactions. Describing the indictment as an “Orwellian nightmare,” Stewart criticizes the charges as convoluted and grounded more in fiction than in reality.
He goes on to commend the resilience of Samourai’s software design, pointing out that users running their own nodes remain unaffected by the government’s seizure of the company’s websites and services. This, according to Stewart, is a testament to the indomitable nature of decentralization and a realization of Satoshi Nakamoto’s original vision for Bitcoin.
Addressing the average person’s dismissive attitude toward privacy concerns, Stewart makes pointed, personal observations. He argues that everyone naturally seeks privacy in certain aspects of their lives, whether they recognize it as such or not. He challenges the notion that law-abiding citizens have nothing to fear from surveillance, asserting that the aggregation of metadata can reveal intimate details about anyone’s private life.
In Stewart’s view, the government’s unyielding quest for control has now encroached on the digital privacy of even the smallest minority groups, like Bitcoin users. He warns that building another layer of surveillance under the guise of regulation could spell the end of any sanctuary for personal privacy.
The implications of Stewart’s comments are stark: the battle over privacy within the cryptocurrency domain is not isolated, it is indicative of a broader clash over civil liberties. The outcome of this struggle could set precedents with far-reaching implications for all aspects of digital privacy, including other privacy-focused cryptocurrencies like Monero (XMR). He calls for solidarity within the crypto community, cautioning that a defeat in this battle could have a domino effect, eroding the privacy rights of every individual.
In contrasting views on legal power dynamics Giacomo presents a pragmatic, if somewhat skeptical, viewpoint, questioning the efficacy of legal actions against the entrenched power of nation-states and their financial appendages, particularly when it concerns their core interests like financial regulation and monetary control. This reflects a broader discourse on whether justice and logic can prevail in a system perceived to be influenced by might and corruption.
Upholding Bitcoin’s Ideals Against Legal Challenges
Responding to Giacomo’s concerns, Beautyon reiterates a belief in Bitcoin’s foundational principles and the cryptocurrency community’s resolve to face legal challenges. They highlight COPA’s previous successes as evidence of what a united front can achieve, emphasizing that proactive defense rather than skepticism should guide the community’s response to regulatory threats.
In a bold declaration, the founder of ZEUS wallet, Evan Kaloudis, has issued a firm statement in response to the intensifying discourse around the rights to self-custody. Reaffirming his company’s dedication to operating within the United States, Kaloudis highlights that ZEUS is committed to adhering to the current legal framework, yet remains prepared to adapt to any future changes in legislation or legal interpretations.
The statement positions self-custody not just as a feature of cryptocurrency but as a fundamental principle worth vigorously defending. Kaloudis suggests that the potential regulatory challenges faced by ZEUS could presage broader implications for all lightning node operators and, by extension, the very ethos of self-custody within the crypto community.
Drawing a line in the sand, the message from Kaloudis is unequivocal: the battle for self-custody is the real struggle for the soul of Bitcoin. He contends that those who do not support this fight may lack genuine alignment with the core reasons behind Bitcoin’s creation.
The rallying cry is clear: it’s time to take a stand for self-custody, with Kaloudis urging the community to either join this cause or step aside. The statement closes with a forward-looking vision, emphasizing the importance of setting a precedent that will guide not only the current but also future generations, who will look back on the actions taken today.
This stance of defiance encapsulates a sentiment shared by many within the space, where the principles of decentralization and individual sovereignty are held in high regard. Kaloudis’s statement is more than a defense of his company’s practices; it’s a call to action for the broader community to uphold the values upon which the cryptocurrency movement was built.
The Intersection of Belief and Advocacy
The dialogue showcases the Bitcoin community’s divergent perspectives: on one side is the idealistic conviction in the sanctity of Bitcoin as free speech, and on the other, the practical acknowledgment of the prevailing power structures. What remains clear is that the community’s response to the Samourai Wallet case could be critical in shaping the future of Bitcoin’s legal standing.
Author Profile
- Lucy Walker covers finance, health and beauty since 2014. She has been writing for various online publications.
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