Crypto industry leaders have called on the United States Securities and Exchange Commission to reassess how it views blockchain privacy tools, arguing that these technologies serve legitimate financial and personal privacy needs beyond criminal misuse. The discussion took place during the SEC’s latest crypto focused roundtable on financial surveillance and privacy, part of a broader review of the agency’s approach to digital assets.
Executives participating in the session said the default assumption that privacy focused blockchain tools primarily enable wrongdoing is flawed and risks stifling innovation. Instead, they urged regulators to adopt a more balanced framework that recognizes lawful use cases while still addressing financial crime concerns.
Katherine Kirkpatrick Bos, general counsel at StarkWare, said a key takeaway from the roundtable was the need to shift how regulators frame privacy technologies. She argued that users and developers of blockchain privacy tools should not be presumed to be acting in bad faith.
According to Kirkpatrick Bos, regulators should assume that individuals are using these tools for legitimate purposes unless there is clear evidence of misconduct. She acknowledged that bad actors do use privacy tools but emphasized that effective regulation must strike a balance rather than treating all privacy seeking users as suspicious.
Stablecoins and blockchain privacy tools draw rising demand
Privacy was also discussed in the context of stablecoins, which are increasingly used for payments and settlements. Wayne Chang, founder and chief executive of credential management firm SpruceID, told the roundtable that a meaningful portion of stablecoin users want transactional privacy.
Chang said many stablecoins that currently operate offchain could move onchain if stronger privacy features were available. He predicted that demand for privacy preserving blockchains would increase as stablecoin adoption grows, especially among users who want the efficiency of blockchain settlement without exposing sensitive financial data.
Chang added that continued engagement between regulators and the industry is critical. He said thoughtful discussions could help ensure privacy protections for users while still equipping authorities with tools to address illicit activity.
Beyond privacy, the roundtable also examined whether existing Know Your Customer and Anti Money Laundering frameworks are fit for an era increasingly shaped by artificial intelligence. Kirkpatrick Bos said panelists questioned whether manual identity checks remain effective when fake documents can be generated quickly using modern tools.
She pointed to common practices such as requesting photos of driver’s licenses, calling them ineffective and easy to exploit. Participants discussed whether cryptography based identity solutions could improve security while limiting unnecessary data collection. The goal, according to Kirkpatrick Bos, is to verify the legality of funds without exposing personal details that are irrelevant to compliance.
Some blockchain based identity projects are already testing these ideas. One example cited was Sam Altman’s World project, which issues users a cryptographic key designed to prove they are human while aiming to preserve privacy.
SEC Chair Paul Atkins, who delivered opening remarks at the event, cautioned that poorly designed regulation could push crypto in a troubling direction. He warned that if misused, blockchain systems could evolve into an unprecedented financial surveillance infrastructure, undermining the privacy benefits that initially drew users to the technology.
The discussion highlighted growing tension between surveillance, compliance, and personal privacy as crypto adoption expands. Industry leaders say that recognizing the legitimate role of blockchain privacy tools will be essential for building a compliant yet user respectful financial system.
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