Surprise: DOJ Is Not a Big Fan of Privacy-Preserving Cryptocurrencies
The Department of Justice has been busy thinking about how to deal with cryptographic technologies. This past month, DOJ has issued two major statements on privacy-preserving tech, one of them an international rallying cry to build government backdoors into secure communications and the other a “clarification” of federal policy surrounding cryptocurrency applications. Unsurprisingly, both documents view privacy-preserving technologies as impediments to DOJ operations.
The encryption statement was mostly a reiteration of long-standing government issues with secure communications, this time wrapped in the packaging of saving children from criminals. Signatories from the Anglo governments (“Five Eyes“) plus India and Japan again asserted that “public safety [can] be protected without compromising privacy or cyber security.” This is obviously true in the abstract, but not when the “protection” in question is a government backdoor that necessarily compromises privacy and security. No new ground was broken here.
The cryptocurrency report, on the other hand, does give new insight into the developing priorities of federal bodies grappling with the rise of cryptocurrency. It’s not a lawmaking document, but rather a backgrounder laying out how cryptocurrency works and where certain applications might run afoul of established agency guidance. Still, it provides a valuable look into where the next battles in the war between privacy and surveillance will be fought. Specifically, DOJ has indicated a strong unease with “anonymity enhanced cryptocurrencies” (AECs), more commonly known as privacycoins, such as Monero and Zcash, as well as coin-mixing techniques.
The report, “Cryptocurrency: An Enforcement Framework” begins with a brief description of blockchain technologies before sparing an even briefer few words for the “breathtaking possibilities for human flourishing” that distributed ledger technologies may raise. The reader will be treated to two curt paragraphs discussing limited “legitimate uses,” including eliminating the need for a financial intermediary, minimizing transaction costs, providing an inflation shelter and micro-payments, and improved security controls. Even then, these are caveated.
This perfunctory nod to positive use cases dwarfs in comparison to the roughly fourteen pages of horribles that follow. The report recounts in exhausting detail every possible crime that could be or has been committed using cryptocurrency. There are three major categories: 1) financial transactions used to commit crimes, e.g. drug trafficking and terrorism; 2) money laundering to hide crimes or tax evasion; and 3) cryptocurrency scams and hacks.
It shouldn’t surprise anyone that America’s top cops would spend more time fearmongering on worse case scenarios than describing, say, how cryptocurrencies have been a lifeline to people in tyrannical or failing states. But a bit of context would have provided much needed clarity.
For example, the first page of the report states that “cryptocurrency is increasingly being used to buy and sell lethal drugs … contributing to an epidemic that killed over 67,000 Americans by overdose in 2018 alone.” The citation just leads to the CDC statistics on total overdose deaths, yet the claim makes it seem like it was mostly cryptocurrency that directly caused these deaths.
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