Jack Dorsey says proposed cryptocurrency regulations would create ‘perverse incentives’

Jack Dorsey, CEO of Twitter and Square, is not happy with the proposed new cryptocurrency regulations. He highlighted how the regulation would hurt Square, a financial services company, in a letter posted on the company’s website.

In October, Square bought $ 50 million in bitcoin. The company has also invested heavily in the cryptocurrency ecosystem, so Square has a lot of skin in the game. The regulation creates “unnecessary friction and perverse incentives for cryptocurrency customers to avoid regulated entities for. cryptocurrency transactions, ”writes Dorsey.

The regulation, proposed by the Financial Crimes Enforcement Network (FinCEN), would require financial institutions (like Square) to collect personal information about parties involved in cryptocurrency transactions. You can read them in detail here, but the most important requirement is that financial institutions collect the name and physical address of both parties for any significant transaction they are involved in.

The regulation aims to help prevent some of the illegal uses of cryptocurrencies, such as drug trafficking, money laundering and “international terrorist financing”. But Dorsey’s main grievance is that they would create “unnecessary friction” between cryptocurrency users and financial institutions, which could lead to “perverse incentives”.

To put it plainly – were the [regulations] to be implemented as written, Square would be required to collect unreliable data on people who have not opted in to our service or who have not registered as customers.

To use an example included in the letter, let’s say a parent uses Square to send their daughter $ 4,000 in bitcoin. Even if the girl was using a private Bitcoin wallet on her own computer, then Square would be forced to collect her personal information, including her physical address. Dorsey, along with other privacy advocates, sees this as overbreadth, especially given the open nature of blockchain.

Dorsey argues that regulation could end up causing clients to “use non-custodial portfolios or services outside the United States to move their assets more easily,” which would give FinCEN “less visibility into the universe of cryptocurrency transactions than today ”. Put simply, if people have to provide private information to a bank to complete a transaction, they’ll avoid using the bank – which the CEO describes as a perverse inducement.

Plus, writes Dorsey, it hinders innovation. “Onerous information gathering and reporting requirements deny U.S. companies like Square the ability to compete on an equal footing to make cryptocurrency a tool for economic empowerment.”

The letter was submitted as part of the unusually short comment period for the settlement. The standard public comment period for these types of policies is 60 days, but the comment period for this proposal is 15 days, many of which were statutory holidays. The Treasury Department’s reasoning for this is due to “important national security imperatives,” but it does not provide other examples.