The European Securities and Markets Authority (ESMA) has budgeted $1.2 million to monitor crypto and other fintech innovations for 2019, according to the ESMA’s most recent Annual Work Programme. The ESMA aims to watch digital assets more closely and cites its objective of promoting economic stability as a major part of its rationale behind this new priority.
The ESMA document sets out guidelines to “achieve a coordinated approach to the regulation and supervisory treatment of new or innovative financial activities and provide advice to present to the EU institutions, market participants or consumers.”
This coordinated approach includes assigning six full-time staff members to collect information about the use of crypto assets and fintech advancements.
Other Government Organizations Also Watching Crypto
Crypto users have become fairly used to thinking of cryptocurrencies as being anonymous, or pseudonymous at the very least. Take addresses into account — Bitcoin addresses are not tied to geographic locations in the same way that IP addresses are. So far, users don’t have to put up with KYC/AML procedures in order to download and use crypto wallets. As data packets containing cryptocurrency transaction data can be traced back to a specific IP address, it’s easy to understand how Ross Ulbricht, known as “Dread Pirate Roberts,” might have gotten careless enough to get caught.
Governments are watching cryptocurrencies and that includes monitoring transaction data stored on their associated blockchains. The United States seems to be especially interested in doing this, even going as far as to pass a bill forcing foreign governments to deploy tools to watch crypto assets or face sanctions last year. The bill is supposedly aimed at combating “illicit financial trends,” including the financing of terrorism and money laundering.
The United States does seem interested in not looking like a complete villain, however. Former CIA counter-terrorism analyst Yaya Fanusie had this advice for dealing with crypto assets:
“The policy question is: how do you deal with something that governments can’t control? … Bitcoin is like a rebellious teenager. It wants to do its own thing. So what do you do? Do you ban it? No, you want to have a good relationship with it and influence how it develops.”
Privacy Coins May Enable Fighting Back
In an era where governments want to track your every step, what you’re doing and saying, and what you spend your money on, even in situations where you would expect some semblance of privacy, what can you do to fight back besides using cash for transactions and keeping your gadgets near your person 24/7?
Despite the heavy emphasis on exchanges, possibly one of the easiest ways to handle the matter is to treat exchanges only as the “on-ramp” and “off-ramp” for cryptocurrencies. The exchange rate should only matter if you’re going to use Bitcoin or Bitcoin Cash to buy a gift card denominated in fiat currencies. People are still interested in finding ways to earn and spend crypto partly because it’s easier than opening a bank account without a photo ID, and partly because they are fond of their privacy. Privacy is easier to manage if you actually use crypto assets instead of worrying about how exchanges function.
Privacy coin teams are also working on the problem. Monero, for instance, is capable of “mixing” coins sent in a transaction with decoys to make it difficult for the coins used in any particular transaction to be traced. Monero users can also set up a “blind” transaction that obscures the amount sent so that only the sender and the receiver can see it.
Will this discourage governments and their agencies from wanting to know who is using crypto, and for what? Probably not. Governments are notoriously nosy when it comes to private citizens’ business and the $1.2 million that the ESMA is willing to spend on monitoring digital assets is actually on the low end when it comes to government spooks spending tax dollars to stick its nose in the business of cryptocurrency users.