Regulation is really on the way for crypto, and honestly some of that’s long overdue and absolutely needed. We require strong guardrails to ensure that the average American isn’t being ripped off or exposed to blatant fraud. First, we need to make sure that crypto is not used to finance terrorism or launder drug money. The manner in which we’re doing it is an absolute disaster waiting to happen. It all boils down to one fatal flaw: the people making the rules don't understand the technology.

TradFi's Grip Stifles Real Innovation

Look around. Who's shaping the crypto regulatory landscape? It’s largely,” as one industry stakeholder told us, “old-school, traditional finance (TradFi) lawyers, former regulators, and people that kind of learned their trade on Wall Street. Now I’m not here to make moral judgments on these folks, but they are definitely viewing crypto with a legacy system mindset. They’re forcing a round peg in a square hole and the repercussions will be catastrophic.

It would be like trying to regulate the internet in 1995 with laws meant for the postal service. Absurd, right? That's precisely what's happening now. These TradFi folks are considering centralized exchanges with the view that they’re just another brokerage house. They’re calling for heavy-handed KYC/AML requirements that, again, might sound good at first glance but are totally antithetical to the decentralized spirit of crypto.

Privacy? They Think It's Optional.

The obsession with mass data collection – KYC, Travel Rule, the Cryptoasset Reporting Framework – is a ticking time bomb. These regulations require we freely give our private data to large, centralized databases, honeypots for any and every hacker.

Remember the Equifax breach? Or the numerous hacks that have become a daily news occurrence even for the largest of companies? Now picture that, but with your entire crypto transaction history laid bare. Your crypto wallet, your crypto transactions, your crypto identity— all at risk of being stolen, extorted, or worse.

The Coinbase example Clara highlights – a hypothetical data breach in 2025 leading to social engineering attacks and financial ruin – isn't just a hypothetical. It's a very real possibility. We’re not alluding to “wrench attacks” becoming the norm, where criminals violently accost crypto holders demanding their private keys. Is that really the future we want?

The technology exists to make much of this data collection redundant. Decentralized digital identities, zero-knowledge cryptography and other privacy-enhancing technologies (PETs) provide a way for these laws to be satisfied without trampling on individual privacy. Why aren't regulators embracing these solutions? Because very few of them have never even been exposed to them.

Suits Can't Code That's The Problem

This is not merely a privacy issue, but an innovation issue. Regulations purpose-built for a world of centralized intermediaries will kill innovation in the incubator of a decentralized future. They will shun the disruptive threat of new competitors and erect barriers to entry for startups and innovators. Unless we do, we’re in danger of making crypto nothing more than a new shade of the current financial system, defying the technology’s transformative promise.

  • Innovation Killed: Regulations designed for centralized finance stifle innovation and prevent the development of new and beneficial applications.
  • Centralization Boosted: Overly strict KYC/AML requirements drive users towards centralized exchanges, undermining crypto's decentralized nature.
  • Privacy Breached: Mass data collection exposes user data to security breaches and privacy violations.
  • Arbitrage Created: Burdensome regulations push crypto activity to less regulated areas, hindering monitoring and control.

What about proof-of-reserve systems? Privacy pools? These are crypto-native solutions that strike a balance between addressing genuine regulatory concerns and protecting the privacy of users while fostering innovation. They’re being largely thrown in the recycling bin by regulators who are stuck on stupid and allured by old school ways.

It would be analogous to trying to design a self-driving car while thinking like a designer of a horse-drawn carriage. An example of what not to do…you can’t just make your box look like a car. In terms of innovative new features, it won’t be earth-shattering.

We need techno-lawyers, technologists and cryptographers at the table and active in these discussions. For one thing, Clara knows her stuff when it comes to the tech side of blockchain. She can use plain language to outlay the risks of inadequately conceived rules. We need regulators who are ready to listen and learn rather than just impose their own bad ideas.

I'm not anti-regulation. I'm pro-smart regulation. Regulation that protects consumers without stifling innovation. Regulation that welcomes innovation rather than dreading it. We need regulation that recognizes privacy is not a luxury, but a human right.

The clock is ticking. This is especially dangerous when regulations are being finalized literally right now based on legacy systems and outdated thinking. If we don't act, we risk creating a regulatory framework that will cripple the crypto industry for years to come. It’s time for us, the builders, the innovators, the users to engage. We need to make our voices heard. It starts with us demanding a seat at the table. The future of crypto depends on it.